Monopoly rents and foreign direct investment in fixed assets

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

In the past two decades, much of foreign direct investment (FDI) in the primary sector has flowed to unconventional, politically risky destinations. This presents a puzzle for theories that emphasize the ex post immobility of-and hence high potential expropriation risk for-fixed asset investment. Existing theories overlook one critical aspect of fixed assets: large capital requirements and high sunk costs act as entry barriers, resulting in market concentration and strong firm incentive formonopoly rent extraction. Personalist dictatorships, we posit, provide an attractive institutional environment for fixed asset investors. In such systems, the control of key economic sectors by the families of leaders, combined with a lack of institutional constraints, facilitate rent-seeking activities. We find that personalist dictatorships receive significantly more foreign investment in the primary sector, and fixed-asset intensive industries in general, than other regimes. This study highlights the importance of accounting for heterogeneity among investors and political regimes to understand the politics of FDI.

Original languageEnglish (US)
Pages (from-to)341-356
Number of pages16
JournalInternational Studies Quarterly
Volume62
Issue number2
DOIs
StatePublished - Jun 1 2018

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monopoly
direct investment
rent
foreign investment
assets
primary sector
dictatorship
investor
expropriation
political regime
economic sector
incentive
regime
leader
firm
politics
industry
lack
market
costs

All Science Journal Classification (ASJC) codes

  • Sociology and Political Science
  • Political Science and International Relations

Cite this

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Monopoly rents and foreign direct investment in fixed assets. / Wright, Joseph; Zhu, Boliang.

In: International Studies Quarterly, Vol. 62, No. 2, 01.06.2018, p. 341-356.

Research output: Contribution to journalArticle

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