AN ECONOMIC ANALYSIS OF EXPROPRIATIONS, SOVEREIGN DEFAULTS AND THE INVESTOR-STATE DISPUTE SETTLEMENT REGIME.

Abstract

This paper studies empirically expropriations of foreign direct investment and the welldocumented puzzle of asynchronous sovereign debt defaults and expropriations. The theory of reputational spillovers between debt and equity capital markets suggest that the two events should coincide in time, but the data suggests that this is relatively rare. Tomz and Wright’s (2010) model can account for the lack of synchronization but only if we assume that leaders are relatively patient. Using a new dataset of 205 expropriation events from 1990 to 2019 and the Polity IV dataset of countries’ authority characteristics, I show using a zeroinflated negative binomial regression that this is unlikely to be true, at least if we assume that leaders of politically unstable and polarized countries are likely to be relatively impatient. My results suggest that existing reform efforts to the investor-state dispute settlement (ISDS) system should consider the benefits of streamlining the compensation process.