Reputation and Foreign Direct Investment: Does Expropriation Matters?

In a world absence of an effective supranational body to safeguard MNCs’ foreign assets, however, why are MNCs willing to trust the goodwill and hospitality of HCs in the first place? Once FDI is sunk, why would HCs protect and respect foreign assets when there is no effective international institution to punish their inappropriate behaviors, such as illegally expropriating or nationalizing foreign assets in a sudden?

In this research I propose that the reputation of a HC affects a MNC’s decision of making investments. Reputation here is considered as historical records of interactions between HCs and FDI conditional on different circumstances. Reputation of a HC is damaged more when it expropriate foreign assets during good economic times than when it expropriate during tough times. Through observing reputation, a MNC can better understand how credible a HC is to respect foreign investments. The main hypothesis is that contextually if a HC’s reputation is improving, it will attract more FDI.

Keyword: FDI, Reputation, Host Country, Multinational Corporation, Expropriation

Author: Ian Tsung-yen Chen

Status: Working paper

History: This paper was accepted for presentation at the Workshop on Theories and Methods of International Studies, Taipei, July 16, 2011.

Full Text: Upon request