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), Chinese translation (2019)
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.
13. "How a Retreat from Global Economic Governance May Empower Business Interests." (with Leslie Johns and Krzysztof J. Pelc) Forthcoming (April 2019), Journal of Politics. [Peer-reviewed symposium on US foreign policy]
12. "Contingent Advantage? Sovereign Borrowing, Democratic Institutions, and Global Capital Cycles." with Cameron Ballard-Rosa and Layna Mosley) Forthcoming, British Journal of Political Science.
11. "How Government Reactions to Violence Worsen Social Welfare: Evidence from Peru." (with Renard Sexton and Michael G. Findley) American Journal of Political Science. Early View, DOI: 10.1111/ajps.12415. 2019. [Online Appendix and Replication Files]
10. "International Law, Territorial Disputes, and Foreign Direct Investment." (with David B. Carter and Paul Huth) International Studies Quarterly. Early View, DOI: 10.1093/isq/sqy046. 2018. [Appendix]
9. "Sovereignty, Law, and Finance: Evidence from American Indian Reservations." Quarterly Journal of Political Science 14(4): 405-436. 2017. [Online Appendix and Replication Files]
8. "The Political Economy of US Territories and Indian Country." PS: Political Science & Politics 50(2): 510-514. 2017.
[Peer-reviewed symposium on the US territories]
7. "Under One Roof: Supply Chains and the Protection of Foreign Investment." (with Leslie Johns) American Political Science Review 110(1): 31-51. 2016. [Online Appendix] and [Replication Files]
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)
6. "Withdrawing from Investment Treaties but Protecting Investment." (with Clint Peinhardt) Global Policy 7(4): 571-576. 2016.
5. "Recent Trends in Investor-State Dispute Settlement." Journal of International Dispute Settlement 7(1): 117-135. 2016. [Peer-reviewed special issue] [Current release of Dataset and Codebook]
4. "Bondholders v. Direct Investors? Competing Responses to Expropriation." International Studies Quarterly 59(4): 750-764. 2015. [Replication Files]
3. "Investor-State Disputes: When Can Governments Break Contracts?" Journal of Conflict Resolution 59(2): 239-261. 2015. [Replication Files]
2. "Innovation in Tow: R&D FDI and Investment Incentives." Business and Politics 15(4): 467-491. 2013. [Replication Files]
1. "Aspects of the Political Economy of Development and Synthetic Biology." (with Gautam Mukunda) Systems and Synthetic Biology 3(1): 115-123. 2009. [Peer-reviewed special issue]
"International Investment Law and Foreign Direct Reinvestment." Revise and Resubmit, International Organization.
"The Price of Doing Business: How Startup Costs Improve Government Treatment of Foreign Firms." (with Leslie Johns) Under review. [Appendix]
"Coming to Terms: The Politics of Sovereign Bond Denomination." (with Cameron-Ballard Rosa and Layna Mosley)
"Judicial Economy and Moving Bars in International Investment Arbitration." (with Leslie Johns and Calvin Thrall)
- 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)
"The Intellectual Commons and Property in Synthetic Biology." (with Kenneth A. Oye) Chapter in Markus Schmidt (editor), Synthetic Biology: The Technoscience and its Societal Consequences, Springer Academic Publishing. 2009.