Working Papers in Economics,
University of Bergen, Department of Economics

Abstract: In this paper I develop a voting model that shows the different effects of democratic competition and political constraints on the probability of expropriations of foreign investments. I show that these two aspects of liberal democracy might have very different effects on expropriation risks. Particularly interesting is the prediction that for low to intermediate levels of political competition for executive power, increased competition will lead to higher risk of expropriation. Testing this and other predictions on panel data for actual expropriations in 27 developing countries, I find support for the predictions from the model.

Keywords: Democracy; Expropriations; Foreign investments

JEL-codes: D72; F21; F23

96 pages, February 2, 2011

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