The Shield of Nationality:
When Governments Break Contracts with Foreign Firms
Cambridge University Press (2015)
Winner, Best Book Award (2015-2017), International Political Economy Society
Based on dissertation awarded the Mancur Olson Best Dissertation in Political Economy (2011-2012), American Political Science Association
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 governments in poor countries to do everything possible to reassure foreign firms and, at a minimum, to 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 little incentive to risk their defenses and are 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 foreign 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 analysis and case studies that draw on my field research in Ukraine, Moldova, and Romania, transition countries in which the presence of anti-market behavior is particularly surprising. In the field, I conducted over 150 interviews with the heads of foreign firm subsidiaries and government actors. I demonstrate that firms of the same nationality as the “victim” firm divert investments after a government breaks its contract, and that a more nationally diverse investor community is associated with a higher likelihood of government breach of contract. The case studies show that co-national actors’ diplomacy and lobbying efforts in Ukraine, Moldova, and Romania are stronger when there are fewer nationalities of firms present in the host country. Cases are further augmented by fieldwork in Russia and Azerbaijan.
[Replication Files for The Shield of Nationality]
Production in the Innovation Economy
MIT Press (2014)
Co-editor with Richard M. Locke, available here. For more information, see MIT Press or MIT PIE: Production in the Innovation Economy. See also the companion book by Suzanne Berger, Making in America.
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[Part of peer-reviewed symposium on the US territories]
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Michael Wallerstein Award for Best Paper in Political Economy, American Political Science Association (for 2016)
Early draft awarded Best Paper in International Relations, Midwest Political Science Association (2014)
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"International Investment Law and Foreign Direct Reinvestment." Revise and Resubmit, International Organization.
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"Moving Bars and Strategic Silence in International Investment Arbitration." (with Leslie Johns)
- Commentary on the future of Investor-State Dispute Settlement: Washington Post (2016), Washington Post (2015), NPR's "All Things Considered" (2015)
- Commentary on international investment law: Washington Post (2016), National Geographic (2015), Moyers & Co (2016), Washington Post (2015), LA Times (2015), Washington Post (2014)
- Commentary on NAFTA: Washington Post (2017), Texas Standard (2016), Texas Tribune (2016), San Antonio Express-News (2016)
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