State capitalism and FDI expropriation in Latin America

Abstract

This article focuses on state capitalism in Latin America and examines what causes the expropriation of foreign direct investment (FDI) in this region. We argue that leaders’ concerns over their political survival affect FDI expropriation in Latin American countries. Specifically, when leaders sense a higher level of political constraints and political insecurity, they are more likely to take unilateral action, i.e., by expropriating FDI. This argument illustrates one important feature of state capitalism: governments utilize markets to serve political goals. We conduct a data analysis of expropriation in 18 Latin American countries from 1980 to 2008, and the results show that leaders are more likely to expropriate when they confront stronger executive constraints. The results also confirm the findings in the literature that democratic regimes expropriate less and that oil-producing countries expropriate more. The focus on Venezuela and Brazil also supports our main argument.