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ID: 146157

Bondholders vs. direct investors? competing responses to expropriation / Wellhausen, Rachel L

Wellhausen, Rachel L	Journal Article
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Summary/Abstract

We often presume that international financial actors have the same preferences, but this paper asks whether the property rights of foreign direct investors matter to sovereign bondholders. When governments expropriate direct investors, different investors' preferences could align over property rights issues. However, bondholders likely take positive signals if expropriation generates revenue for the state. Using a novel data set (1995–2011), I find that governments that earn revenue from expropriation can enjoy lower long-term spreads on sovereign bonds. Although governments that expropriate lose out on FDI, they can benefit by generating revenue and enjoying rewards in sovereign debt markets. Unpacking investor preferences thus reveals gaps in market-based informal property rights enforcement. When bondholders' and direct investors' preferences conflict, governments gain space to prioritize other goals over the protection of private property.

Key Words

Property Rights ; Direct Investors ; Bondholders ; International Financial Actors ; Foreign Direct Investor

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ID: 073554

Economic policy, institutions, and capital flows: portfolio and direct investment flows in developing countries / Ahlquist, John S

Ahlquist, John S	Journal Article
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2006.

Summary/Abstract

Scholars examining the cross-national mobility of capital have followed two distinct paths. Economists tend to focus on the determinants and economic effects of cross-country capital movements while political scientists largely concentrate on the political impact of capital mobility. This study fills an important gap in the literature by examining the effects of economic policy outcomes on capital inflows to developing countries, explicitly comparing the reactions of portfolio and direct investors. I find that portfolio investors are in fact sensitive to past government behavior and fiscal policy outcomes; portfolio investors reallocate funds as new information about government policy becomes available. Direct investors, on the other hand, are not sensitive to macrolevel economic policy outcomes but are concerned with political institutions. Countries with more stable and democratic political institutions attract more FDI. These findings have implications for developing country governments as they consider the sequence of market liberalizing reforms.

Key Words

Institutions ; Developing Countries ; Capital Flows ; Direct Investors ; Economic Policy

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