Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006

This paper documents expropriation of foreign direct investment (FDI) across all developing coun- tries for the 1993-2006 period, extending work by Kobrin (1980, 1984) and Minor (1994). This unique data set on worldwide expropriation between 1960 and 2006 is used to highlight several (interrelated) stylized facts. First, although expropriations have become less frequent compared to the 1970s, the number of takings has risen since the mid-1990s. Second, foreign firms are more vulnerable to expro- priation in resource-based sectors, particularly in mining and petroleum. Third, the timing of expro- priation coincides with fluctuations in mineral output price levels. Finally, when newly constructed FDI stock estimates are used to compare the sectoral distribution of FDI of recent expropriating coun- tries to that of non-expropriating countries, we find that expropriating countries have a higher average share of aggregate FDI located in resources; however, this difference is not reflected in average sector production shares. This last fact is puzzling given that natural resource-based FDI has traditionally been considered high risk.