SFB 303 Discussion Paper No. A-515
Author: Schnitzer, Monika
Title: Expropriation and Control Rights: A Dynamic Model
of Foreign Direct Investment
Abstract: This paper studies the strategic interaction between
a foreign direct investor and a host country. We analyze how the investor
can use his control rights to protect his investment if he faces the risk of
"creeping expropriation" once his investment is sunk. It is shown that this
hold-up problem may cause underinvestment if the bargaining position of the
investor is too weak and overinvestment if it is too strong. We also analyze
the impact of spillover effects, we give a rationale for "tax holidays" and
we examine how stochastic returns affect the strategic interaction of
investor and host country.
Keywords: Foreign Direct Investment, Sovereign Risk, Implicit
JEL-Classification-Number: F2, F34, L14
Creation-Date: March 1996
URL:
../1996/a/bonnsfa515.pdf
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