IR Workshop- Rachel Wellhausen

DateFebruary 8, 2016

Time12:00pm to 2:00pm

Location
4357 Bunche Hall

Contact

There is extraordinary variation in how governments treat multinational corporations in emerging market countries. Governments around the world have nationalized, expropriated, or eaten away at the value of foreign-owned property in violation of international treaties. This is despite the fact that we expect, at a minimum, that governments in poor countries will respect the contracts they make with foreign firms lest foreign capital flee. In The Shield of Nationality, I introduce foreign firm nationality as a key determinant of which firms take flight or fight when a government breaks contracts. Firms of the same nationality are likely to worry that their co-national’s broken contract is a forewarning of their own problems. This sense of shared political risk has two effects. First, firms of the same nationality lobby their diplomats to shield them from breach. Second, firms of the same nationality are likely to divert their investments when the shield is pierced and a co-national firm faces a broken contract. In contrast, firms of other nationalities have less incentive to risk their defenses and are more likely to meet the broken contract with apparent indifference. The theory’s counterintuitive implication is that a nationally diverse investor community can be a liability to firms while providing an opening for governments to prioritize other goals over the property and preferences of foreign capital. My evidence for these findings includes cross-national quantitative analyses and case studies that draw on field research in Moldova, Romania, and Ukraine.

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