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Investment and Expropriation under Oligarchy and Democracy in a Heckscher-Ohlin World

Author

Listed:
  • Facundo Albornoz
  • Sebastian Galiani
  • Daniel Heymann
Abstract
We study the incentives to expropriate foreign capital under democracy and obligarchy. We model a two-sector small open economy where foreign investment triggers Stolper-Samuelson effects through reducing exporting costs. We show how incentives to expropriate depend on the distributional effects of the investment and how these affect the interests of the group in power. How investment affects the incomes of the different groups in society depends on the sectors where these investments are undertaken and the structural features of the economy such as factor intensity. We characterize expropriation equilibria and show that if investment is undertaken in the sector that uses labor less intensively, democracies are generally more prone to expropriate. This result provides one possible rationalization for the wave of expropriation equilibria and show that if investment is undertaken in the sector that uses labor less intensively, democracies are generally more prone to expropriate. This result provides one possible rationalization for the wave of expropriations in Latin America under governments with a broad popular base during the 20th Century.

Suggested Citation

  • Facundo Albornoz & Sebastian Galiani & Daniel Heymann, 2008. "Investment and Expropriation under Oligarchy and Democracy in a Heckscher-Ohlin World," Discussion Papers 08-02, Department of Economics, University of Birmingham.
    • Handle: RePEc:bir:birmec:08-02
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    References listed on IDEAS

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    1. Bruce A. Blonigen & Matthew J. Slaughter, 2019. "Foreign-Affiliate Activity and U.S. Skill Upgrading," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 10, pages 325-367, World Scientific Publishing Co. Pte. Ltd..
    2. Philippe Aghion, 2005. "Growth and Institutions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(1), pages 3-18, March.
    3. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    4. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 803-832, December.
    5. Olson, Mancur, 1993. "Dictatorship, Democracy, and Development," American Political Science Review, Cambridge University Press, vol. 87(3), pages 567-576, September.
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    Cited by:

    1. Sebastian Galiani & Norman Schofield & Gustavo Torrens, 2014. "Factor Endowments, Democracy, and Trade Policy Divergence," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(1), pages 119-156, February.
    2. Akerman, Anders & Larsson, Anna & Naghavi, Alireza, 2011. "Autocracies and Development in a Global Economy: A Tale of Two Elites," Research Papers in Economics 2011:24, Stockholm University, Department of Economics.
    3. Aidt, Toke S. & Albornoz, Facundo, 2011. "Political regimes and foreign intervention," Journal of Development Economics, Elsevier, vol. 94(2), pages 192-201, March.

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    More about this item

    Keywords

    Expropriation; political regimes; democracy; oligarchy; foreign investments; Stolper-Samuelson;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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