Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963112 | Journal of International Economics | 2009 | 8 Pages |
Abstract
We construct a model of FDI, risk and aid, where a country loses access to FDI and aid if the country expropriates FDI. We show that: (i) the threat of expropriation leads to under-investment; (ii) the optimal level of FDI decreases as the risk of expropriation rises; and (iii) aid mitigates the adverse effect of expropriation risk on FDI. The empirical analysis employs data for 35 low-income countries and 28 countries in Sub-Saharan Africa, over the period 1983-2004. We find that risk has a negative effect on FDI and that aid mitigates but cannot eliminate the adverse effect of risk.
Related Topics
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Authors
Elizabeth Asiedu, Yi Jin, Boaz Nandwa,