Sources of change in Third World regimes for foreign direct investment, 1968–1976

Abstract

Many developing countries have become increasingly activist toward multinational corporations in recent years. A number of governments have significantly altered the national regime for foreign direct investment (FDI) in order to shift ownership and control toward the host country. The national regime for FDI is the set of rules, regulations, and behavioral norms under which foreign enterprises are expected to operate. Foreign investment regime change can occur in a number of ways (formal expropriation, cancellation of contracts or concessions, alteration of taxation and royalty formulae, limitations on profit repatriation, requirements of local equity participation, etc.) that affect the operational autonomy and financial returns of the foreign firm. This paper will present a theory to explain one aspect of foreign investment regime change: the formal nationalization or expropriation of foreign-owned subsidiaries operating in natural resource extraction.