Retail price differences across U.S. and Canadian cities during the interwar period

We construct a unique panel of retail food prices in 69 Canadian and 51 U.S. cities during the Interwar (1920-40) period. Surprisingly, we find that average relative price dispersion across cities within Canada and the U.S., and the role of distance in accounting for cross-city price differences, was very similar to estimates from the 1980s and 1990s. We also find large changes in the importance of the Canada- U.S. border during the Interwar period. While increased price differences between Canadian and U.S. cities coincide with the end of the gold-standard (and the move to floating nominal exchange rates), large relative and absolute price differences persist even after the Canada-U.S. nominal exchange rate returned to parity. The substantial "thickening" of the border in the 1930s appears to reflect dramatic changes in trade policy and the degree of market integration during this period

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

This paper documents expropriation of foreign direct investment (FDI) across all developing countries 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 expropriation in resource-based sectors, particularly in mining and petroleum. Third, the timing of expropriation 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 countries 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.PublishedBaunsgaard, T. (2001). “A Primer on Mineral Taxation.” IMF working paper WP/01/139. Caselli, F. (2005). “Accounting for Cross-Country Income Differences,” in Handbook of Economic Growth. Philippe Aghion and Steven Durlauf, eds.. Elsevier Press. Cole, H. L., & English, W. B. (1991). “Expropriation and Direct Investment.” Journal of International Economics, 30(3-4), 201–227. Duncan, R. (2005). “Price or politics? An Investigation of the Causes of Expropriation.” Australian Journal of Agricultural and Resource Economics, 50(1), 85–101. Dunning, J., & Cantwell, J. (1987). IRM Directory of Statistics of International Investment and Production. New York University Press. Eaton, J., & Gersovitz, M. (1984). “A Theory of Expropriation and Deviations from Perfect Capital Mobility.” The Economic Journal, 94, 16–40. Engel, E., & Fischer, R. D. (2010).”Optimal Resource Extraction Contracts under Threat of Expropriation,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Gillis, M. (1982). “Evolution of Natural Resource Taxation in Developing Countries.” Natural Resources Journal, 22, 619–648. Guriev, S., Kolotilin, A., & Sonin, K. (2009). “Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data. Journal of Law,” Economics, and Organization, (pp. 1–23). Gurr, T. R. (1971). Why Men Rebel. New Jersey: Princeton University Press. Holburn, G. L., & Zelner, B. A. (2010). “Political Capabilities, Policy Risk and International Investment Strategy: Evidence from the Global Electric Power Industry.” Strategic Management Journal. 31(12): 1290–1315. IMF Capital Markets Consultative Group (2003). Foreign Direct Investment in Emerging Market Countries. Washington, D.C.: International Monetary Fund. Jodice, D. A. (1980). “Sources of Change in Third World Regimes for Foreign Direct Investment, 1968–1976.” International Organization, 34(2), 177–206. Jones Jr, R. J. (1984). “Empirical Models of Political Risks in US Oil Production Operations in Venezuela.” Journal of International Business Studies, 15(1), 81–95. Kennedy Jr., C. R. (1993). “Multinational Corporations and Expropriation Risk.” Multinational Business Review, 1(1), 44–55. Knudsen, H. (1974). “Explaining the National Propensity to Expropriate: An Ecological Approach.” Journal of International Business Studies, 5(Spring), 51–89. Kobrin, S. J. (1980). “Foreign Enterprise and Forced Divestment in LDCs.” International Organization, 34(1), 65–88. Kobrin, S. J. (1984). “Expropriation as an Attempt to Control Foreign Firms in LDCs: Trends from 1960 to 1979.” International Studies Quarterly, 28(3), 329–348. Lane, P., & Milesi-Ferretti, G. (2007). “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004.” Journal of International Economics, 73(2), 223–250. Lane, P. R., & Milesi-Ferretti, G. (2001). “The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries.” Journal of international Economics, 55(2), 263–294. Mikesell, R. F. (1984). Petroleum Company Operations in Developing Countries. Washington D.C.: Resources for the Future. Minor, M. S. (1994). “The Demise of Expropriation as an Instrument of LDC Policy, 1980-1992.” Journal of International Business Studies, 25(1), 177–188. Monaldi, F. (2001). “Sunk-costs, Institutions, and Commitment: Foreign Investment in the Venezuelan Oil Industry.” Unpublished manuscript, Stanford University, Department of Political Science. Nellor, D. C. (1987). “Sovereignty and Natural Resource Taxation in Developing Countries.” Economic Development and Cultural Change, 35(2), 367–392. Otto, J. A. (1992). “A Global Survey of Mineral Company Investment Preferences and Criteria for Assessing Mineral Investment Conditions ,” in Minerals Investment Conditions in Selected Countries of the Asia Pacific Region, New York: United Nations Economic and Social Commission for Asia and the Pacific. Otto, J. A. (2000). “Mining Taxation in Developing Countries.” Study prepared for UNCTAD. Otto, J. A., Craig, A., Cawood, F., Doggett, M., Guj, P., Stermole, F., Stermole, J., & Tilton, J. (2006). Mining Royalties: A Global Study of their Impact on Investors, Government, and Civil Society. Washington D.C.: The International Bank for Reconstruction and Development / The World Bank. Picht, H., & Stüven, V. (1991). “Expropriation of Foreign Direct Investments: Empirical Evidence and Implications for the Debt Crisis.” Public Choice, 69(1), 19–38. Price Waterhouse Coopers (1999). Asia Pacific Mining Regulations. Washington, D.C.: November Newsletter. Raff, H. (1992). “A Model of Expropriation with Asymmetric Information.” Journal of International Economics, 33(3-4), 245–265. Rivas, R., Renard, S., Vela, D., Rigo, J., Godinez, F., & Roder, R. (2005). “Mining taxation in Chile and in the Region: A Comparative Analysis.” Unpublished Technical Report. Rood, L. L. (1976). “Nationalisation and Indigenisation in Africa.” The Journal of Modern African Studies, 14(3), 427–447. Shafer, M. (2009).”Capturing the Mineral Multinationals: Advantage or Disadvantage?” International Organization, 37(01), 93–119. Thomas, J., & Worrall, T. (1994). “Foreign direct Investment and the Risk of Expropriation.” The Review of Economic Studies, 61(1), 81–108. Tomz, M., & Wright, M. (2010). “The Natural Resources Trap: Private Investment without Public Commitment,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Truitt, F. J. (1970). “Expropriation of Foreign Investment: Summary of the Post World War II Experience of American and British Investors in the Less Developed Countries.” Journal of International Business Studies, 1(2), 21–34. UNCTAD (2000). Tax Incentives and Foreign Direct Investment: A Global Survey. New York: United Nations. Vernon, R. (1971). Sovereignty at bay: The multinational spread of US enterprises. New York: Basic Books. Wahju, B. (2002). “Indonesian Mining Industry in the Period of Transition, Between 1997-2001.” International Convention, Trade Show Investors Exchange, Prospectors and Developers Association of Canada (PDAC), Toronto: 10–13. Williams, M. L. (1975). “The Extent and Significance of the Nationalization of Foreign-Owned Assets in Developing Countries, 1956-1972.” Oxford Economic Papers, 27(2), 260–273

Resource-based FDI and Expropriation in Developing Economies

Expropriation of foreign direct investment (FDI) is more likely to occur in resource extraction compared to other sectors. Despite the higher risk of expropriation in resources, countries viewed as more likely to expropriate (having expropriated in the recent past) also have a disproportionate share of FDI in the resource sector. An incomplete markets model of FDI is developed to account for this puzzle. In one sector of the economy, resources, the government manages a stock of mineral rights. The type of government regime is stochastic, with low penalty regimes facing a relatively low, exogenous cost of expropriating FDI, and the level of country risk is measured by the variation in these costs across different regimes. The key innovation of the model is that the government, before the regime type is known, is able to charge different prices to domestic and foreign investors for mineral rights. Granting cheap access increases FDI and reduces the country’s share of resource rents, increasing the temptation to expropriate in a relatively low penalty regime. In very high-risk countries, subsidizing resource FDI increases the total value of output by raising investment, and the net gains from expropriating in a low penalty regime outweigh the rents foregone under a high penalty one. However, a stochastic resource output price results in relatively low-risk countries restricting FDI inflows to the resource sector instead – “windfall profits” in this sector raise incentives to expropriate when prices are high, yet minimization of the ex ante risk of expropriation is preferred owing to the relatively high penalty for expropriating. These results imply a higher average share of resource-based FDI in countries most likely to expropriate, while resources account for a high share of expropriated assets compared to the sector’s global share of FDI.PublishedAlbuquerque, R. (2003). “The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment.” Journal of International Economics, 61, 353–383. Alfaro, L., Kalemli-Ozcan, S., & Volosovych, V. (2008). “Why Doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation.” The Review of Economics and Statistics, 90(2), 347–368. Chang, R., Hevia, C., & Loayza, N. (2010). “Privatization and nationalization cycles.” NBER working paper 16126. Cole, H. L., Dow, J., & English, W. B. (1995). “Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt.” International Economic Review, 36(2), 365–385. Cole, H. L., & English, W. B. (1991). “Expropriation and direct investment.” Journal of International Economics, 30(3-4), 201–227. Duncan, R. (2005). “Price or politics? An Investigation of the Causes of Expropriation.” Australian Journal of Agricultural and Resource Economics, 50(1), 85–101. Eaton, J., & Gersovitz, M. (1984). “A Theory of Expropriation and Deviations from Perfect Capital Mobility.” The Economic Journal, 94, 16–40. Engel, E., & Fischer, R. D. (2010).”Optimal Resource Extraction Contracts under Threat of Expropriation,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Gadano, N. (2010).” Urgency and Betrayal: Three Attempts to Foster Private Investment in Argentina’s Oil Industry,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Geiger, L. T. (1989). “Expropriation and External Capital Flows.” Economic Development and Cultural Change, 37(3), 535–556. Guriev, S., Kolotilin, A., & Sonin, K. (2009). “Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data. Journal of Law,” Economics, and Organization, (pp. 1–23). Hajzler, C. (2010). “Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006.” University of Otago Economics Discussion Paper 1011. Hogan, W., Sturzenegger, F., & Tai, L. (2010). “Contracts and Investment in Natural Resources,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. IMF Capital Markets Consultative Group (2003). Foreign Direct Investment in Emerging Market Countries. Washington, D.C.: International Monetary Fund. Jensen, N. (2006). Nation-States and the Multinational Corporation: A Political Economy of Foreign Direct Investment. New Jersey: Princeton University Press. Jodice, D. A. (1980). “Sources of Change in Third World Regimes for Foreign Direct Investment, 1968–1976.” International Organization, 34(2), 177–206. Johnston, D. (2007). “How to Evaluate the Fiscal Terms of Oil Contracts,” in Escaping the Resource Curse. Macartan Humphreys, Jeffrey Sachs and Joseph Stiglitz, eds.. New York: Columbia University Press. Jones Jr, R. J. (1984). “Empirical Models of Political Risks in US Oil Production Operations in Venezuela.” Journal of International Business Studies, 15(1), 81–95. Kennedy Jr., C. R. (1993). “Multinational Corporations and Expropriation Risk.” Multinational Business Review, 1(1), 44–55. Knudsen, H. (1974). “Explaining the National Propensity to Expropriate: An Ecological Approach.” Journal of International Business Studies, 5(Spring), 51–89. Kobrin, S. J. (1980). “Foreign Enterprise and Forced Divestment in LDCs.” International Organization, 34(1), 65–88. Kobrin, S. J. (1984). “Expropriation as an Attempt to Control Foreign Firms in LDCs: Trends from 1960 to 1979.” International Studies Quarterly, 28(3), 329–348. McMillan, M., & Waxman, A. R. (2007). “Profit Sharing between Governments and Multinationals in Natural Resource Extraction: Evidence from a Firm-Level Panel,” in Brookings Trade Forum: Foreign Direct Investment, pp. 149–175. Mikesell, R. F. (1984). Petroleum Company Operations in Developing Countries. Washington D.C.: Resources for the Future. Minor, M. S. (1994). “The Demise of Expropriation as an Instrument of LDC Policy, 1980-1992.” Journal of International Business Studies, 25(1), 177–188. Monaldi, F. (2001). “Sunk-costs, Institutions, and Commitment: Foreign Investment in the Venezuelan Oil Industry.” Unpublished manuscript, Stanford University, Department of Political Science. Nellor, D. C. (1987). “Sovereignty and Natural Resource Taxation in Developing Countries.” Economic Development and Cultural Change, 35(2), 367–392. Picht, H., & Stüven, V. (1991). “Expropriation of Foreign Direct Investments: Empirical Evidence and Implications for the Debt Crisis.” Public Choice, 69(1), 19–38. Rood, L. L. (1976). “Nationalisation and Indigenisation in Africa.” The Journal of Modern African Studies, 14(3), 427–447. Shafer, M. (2009).”Capturing the Mineral Multinationals: Advantage or Disadvantage?” International Organization, 37(01), 93–119. Stiglitz, J. (2007). “What is the Role of the State?” in Escaping the Natural Resource Curse. Macartan Humphreys, Jeffrey Sachs and Joseph Stiglitz, eds.. New York: Columbia University Press. Thomas, J., & Worrall, T. (1994). “Foreign direct Investment and the Risk of Expropriation.” The Review of Economic Studies, 61(1), 81–108. Tomz, M., & Wright, M. (2010). “The Natural Resources Trap: Private Investment without Public Commitment,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Truitt, F. J. (1970). “Expropriation of Foreign Investment: Summary of the Post World War II Experience of American and British Investors in the Less Developed Countries.” Journal of International Business Studies, 1(2), 21–34. Wei, S. J. (2000). “How taxing is corruption on international investors?” Review of Economics and Statistics, 82(1), 1–11

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

This paper documents expropriation of foreign direct investment (FDI) across all developing countries 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 expropriation in resource-based sectors, particularly in mining and petroleum. Third, the timing of expropriation 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 countries 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.PublishedBaunsgaard, T. (2001). “A Primer on Mineral Taxation.” IMF working paper WP/01/139. Caselli, F. (2005). “Accounting for Cross-Country Income Differences,” in Handbook of Economic Growth. Philippe Aghion and Steven Durlauf, eds.. Elsevier Press. Cole, H. L., & English, W. B. (1991). “Expropriation and Direct Investment.” Journal of International Economics, 30(3-4), 201–227. Duncan, R. (2005). “Price or politics? An Investigation of the Causes of Expropriation.” Australian Journal of Agricultural and Resource Economics, 50(1), 85–101. Dunning, J., & Cantwell, J. (1987). IRM Directory of Statistics of International Investment and Production. New York University Press. Eaton, J., & Gersovitz, M. (1984). “A Theory of Expropriation and Deviations from Perfect Capital Mobility.” The Economic Journal, 94, 16–40. Engel, E., & Fischer, R. D. (2010).”Optimal Resource Extraction Contracts under Threat of Expropriation,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Gillis, M. (1982). “Evolution of Natural Resource Taxation in Developing Countries.” Natural Resources Journal, 22, 619–648. Guriev, S., Kolotilin, A., & Sonin, K. (2009). “Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data. Journal of Law,” Economics, and Organization, (pp. 1–23). Gurr, T. R. (1971). Why Men Rebel. New Jersey: Princeton University Press. Holburn, G. L., & Zelner, B. A. (2010). “Political Capabilities, Policy Risk and International Investment Strategy: Evidence from the Global Electric Power Industry.” Strategic Management Journal. 31(12): 1290–1315. IMF Capital Markets Consultative Group (2003). Foreign Direct Investment in Emerging Market Countries. Washington, D.C.: International Monetary Fund. Jodice, D. A. (1980). “Sources of Change in Third World Regimes for Foreign Direct Investment, 1968–1976.” International Organization, 34(2), 177–206. Jones Jr, R. J. (1984). “Empirical Models of Political Risks in US Oil Production Operations in Venezuela.” Journal of International Business Studies, 15(1), 81–95. Kennedy Jr., C. R. (1993). “Multinational Corporations and Expropriation Risk.” Multinational Business Review, 1(1), 44–55. Knudsen, H. (1974). “Explaining the National Propensity to Expropriate: An Ecological Approach.” Journal of International Business Studies, 5(Spring), 51–89. Kobrin, S. J. (1980). “Foreign Enterprise and Forced Divestment in LDCs.” International Organization, 34(1), 65–88. Kobrin, S. J. (1984). “Expropriation as an Attempt to Control Foreign Firms in LDCs: Trends from 1960 to 1979.” International Studies Quarterly, 28(3), 329–348. Lane, P., & Milesi-Ferretti, G. (2007). “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004.” Journal of International Economics, 73(2), 223–250. Lane, P. R., & Milesi-Ferretti, G. (2001). “The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries.” Journal of international Economics, 55(2), 263–294. Mikesell, R. F. (1984). Petroleum Company Operations in Developing Countries. Washington D.C.: Resources for the Future. Minor, M. S. (1994). “The Demise of Expropriation as an Instrument of LDC Policy, 1980-1992.” Journal of International Business Studies, 25(1), 177–188. Monaldi, F. (2001). “Sunk-costs, Institutions, and Commitment: Foreign Investment in the Venezuelan Oil Industry.” Unpublished manuscript, Stanford University, Department of Political Science. Nellor, D. C. (1987). “Sovereignty and Natural Resource Taxation in Developing Countries.” Economic Development and Cultural Change, 35(2), 367–392. Otto, J. A. (1992). “A Global Survey of Mineral Company Investment Preferences and Criteria for Assessing Mineral Investment Conditions ,” in Minerals Investment Conditions in Selected Countries of the Asia Pacific Region, New York: United Nations Economic and Social Commission for Asia and the Pacific. Otto, J. A. (2000). “Mining Taxation in Developing Countries.” Study prepared for UNCTAD. Otto, J. A., Craig, A., Cawood, F., Doggett, M., Guj, P., Stermole, F., Stermole, J., & Tilton, J. (2006). Mining Royalties: A Global Study of their Impact on Investors, Government, and Civil Society. Washington D.C.: The International Bank for Reconstruction and Development / The World Bank. Picht, H., & Stüven, V. (1991). “Expropriation of Foreign Direct Investments: Empirical Evidence and Implications for the Debt Crisis.” Public Choice, 69(1), 19–38. Price Waterhouse Coopers (1999). Asia Pacific Mining Regulations. Washington, D.C.: November Newsletter. Raff, H. (1992). “A Model of Expropriation with Asymmetric Information.” Journal of International Economics, 33(3-4), 245–265. Rivas, R., Renard, S., Vela, D., Rigo, J., Godinez, F., & Roder, R. (2005). “Mining taxation in Chile and in the Region: A Comparative Analysis.” Unpublished Technical Report. Rood, L. L. (1976). “Nationalisation and Indigenisation in Africa.” The Journal of Modern African Studies, 14(3), 427–447. Shafer, M. (2009).”Capturing the Mineral Multinationals: Advantage or Disadvantage?” International Organization, 37(01), 93–119. Thomas, J., & Worrall, T. (1994). “Foreign direct Investment and the Risk of Expropriation.” The Review of Economic Studies, 61(1), 81–108. Tomz, M., & Wright, M. (2010). “The Natural Resources Trap: Private Investment without Public Commitment,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Truitt, F. J. (1970). “Expropriation of Foreign Investment: Summary of the Post World War II Experience of American and British Investors in the Less Developed Countries.” Journal of International Business Studies, 1(2), 21–34. UNCTAD (2000). Tax Incentives and Foreign Direct Investment: A Global Survey. New York: United Nations. Vernon, R. (1971). Sovereignty at bay: The multinational spread of US enterprises. New York: Basic Books. Wahju, B. (2002). “Indonesian Mining Industry in the Period of Transition, Between 1997-2001.” International Convention, Trade Show Investors Exchange, Prospectors and Developers Association of Canada (PDAC), Toronto: 10–13. Williams, M. L. (1975). “The Extent and Significance of the Nationalization of Foreign-Owned Assets in Developing Countries, 1956-1972.” Oxford Economic Papers, 27(2), 260–273

Resource-based FDI and Expropriation in Developing Economies

Expropriation of foreign direct investment (FDI) is more likely to occur in resource extraction compared to other sectors. Despite the higher risk of expropriation in resources, countries viewed as more likely to expropriate (having expropriated in the recent past) also have a disproportionate share of FDI in the resource sector. An incomplete markets model of FDI is developed to account for this puzzle. In one sector of the economy, resources, the government manages a stock of mineral rights. The type of government regime is stochastic, with low penalty regimes facing a relatively low, exogenous cost of expropriating FDI, and the level of country risk is measured by the variation in these costs across different regimes. The key innovation of the model is that the government, before the regime type is known, is able to charge different prices to domestic and foreign investors for mineral rights. Granting cheap access increases FDI and reduces the country’s share of resource rents, increasing the temptation to expropriate in a relatively low penalty regime. In very high-risk countries, subsidizing resource FDI increases the total value of output by raising investment, and the net gains from expropriating in a low penalty regime outweigh the rents foregone under a high penalty one. However, a stochastic resource output price results in relatively low-risk countries restricting FDI inflows to the resource sector instead – “windfall profits” in this sector raise incentives to expropriate when prices are high, yet minimization of the ex ante risk of expropriation is preferred owing to the relatively high penalty for expropriating. These results imply a higher average share of resource-based FDI in countries most likely to expropriate, while resources account for a high share of expropriated assets compared to the sector’s global share of FDI.PublishedAlbuquerque, R. (2003). “The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment.” Journal of International Economics, 61, 353–383. Alfaro, L., Kalemli-Ozcan, S., & Volosovych, V. (2008). “Why Doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation.” The Review of Economics and Statistics, 90(2), 347–368. Chang, R., Hevia, C., & Loayza, N. (2010). “Privatization and nationalization cycles.” NBER working paper 16126. Cole, H. L., Dow, J., & English, W. B. (1995). “Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt.” International Economic Review, 36(2), 365–385. Cole, H. L., & English, W. B. (1991). “Expropriation and direct investment.” Journal of International Economics, 30(3-4), 201–227. Duncan, R. (2005). “Price or politics? An Investigation of the Causes of Expropriation.” Australian Journal of Agricultural and Resource Economics, 50(1), 85–101. Eaton, J., & Gersovitz, M. (1984). “A Theory of Expropriation and Deviations from Perfect Capital Mobility.” The Economic Journal, 94, 16–40. Engel, E., & Fischer, R. D. (2010).”Optimal Resource Extraction Contracts under Threat of Expropriation,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Gadano, N. (2010).” Urgency and Betrayal: Three Attempts to Foster Private Investment in Argentina’s Oil Industry,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Geiger, L. T. (1989). “Expropriation and External Capital Flows.” Economic Development and Cultural Change, 37(3), 535–556. Guriev, S., Kolotilin, A., & Sonin, K. (2009). “Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data. Journal of Law,” Economics, and Organization, (pp. 1–23). Hajzler, C. (2010). “Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006.” University of Otago Economics Discussion Paper 1011. Hogan, W., Sturzenegger, F., & Tai, L. (2010). “Contracts and Investment in Natural Resources,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. IMF Capital Markets Consultative Group (2003). Foreign Direct Investment in Emerging Market Countries. Washington, D.C.: International Monetary Fund. Jensen, N. (2006). Nation-States and the Multinational Corporation: A Political Economy of Foreign Direct Investment. New Jersey: Princeton University Press. Jodice, D. A. (1980). “Sources of Change in Third World Regimes for Foreign Direct Investment, 1968–1976.” International Organization, 34(2), 177–206. Johnston, D. (2007). “How to Evaluate the Fiscal Terms of Oil Contracts,” in Escaping the Resource Curse. Macartan Humphreys, Jeffrey Sachs and Joseph Stiglitz, eds.. New York: Columbia University Press. Jones Jr, R. J. (1984). “Empirical Models of Political Risks in US Oil Production Operations in Venezuela.” Journal of International Business Studies, 15(1), 81–95. Kennedy Jr., C. R. (1993). “Multinational Corporations and Expropriation Risk.” Multinational Business Review, 1(1), 44–55. Knudsen, H. (1974). “Explaining the National Propensity to Expropriate: An Ecological Approach.” Journal of International Business Studies, 5(Spring), 51–89. Kobrin, S. J. (1980). “Foreign Enterprise and Forced Divestment in LDCs.” International Organization, 34(1), 65–88. Kobrin, S. J. (1984). “Expropriation as an Attempt to Control Foreign Firms in LDCs: Trends from 1960 to 1979.” International Studies Quarterly, 28(3), 329–348. McMillan, M., & Waxman, A. R. (2007). “Profit Sharing between Governments and Multinationals in Natural Resource Extraction: Evidence from a Firm-Level Panel,” in Brookings Trade Forum: Foreign Direct Investment, pp. 149–175. Mikesell, R. F. (1984). Petroleum Company Operations in Developing Countries. Washington D.C.: Resources for the Future. Minor, M. S. (1994). “The Demise of Expropriation as an Instrument of LDC Policy, 1980-1992.” Journal of International Business Studies, 25(1), 177–188. Monaldi, F. (2001). “Sunk-costs, Institutions, and Commitment: Foreign Investment in the Venezuelan Oil Industry.” Unpublished manuscript, Stanford University, Department of Political Science. Nellor, D. C. (1987). “Sovereignty and Natural Resource Taxation in Developing Countries.” Economic Development and Cultural Change, 35(2), 367–392. Picht, H., & Stüven, V. (1991). “Expropriation of Foreign Direct Investments: Empirical Evidence and Implications for the Debt Crisis.” Public Choice, 69(1), 19–38. Rood, L. L. (1976). “Nationalisation and Indigenisation in Africa.” The Journal of Modern African Studies, 14(3), 427–447. Shafer, M. (2009).”Capturing the Mineral Multinationals: Advantage or Disadvantage?” International Organization, 37(01), 93–119. Stiglitz, J. (2007). “What is the Role of the State?” in Escaping the Natural Resource Curse. Macartan Humphreys, Jeffrey Sachs and Joseph Stiglitz, eds.. New York: Columbia University Press. Thomas, J., & Worrall, T. (1994). “Foreign direct Investment and the Risk of Expropriation.” The Review of Economic Studies, 61(1), 81–108. Tomz, M., & Wright, M. (2010). “The Natural Resources Trap: Private Investment without Public Commitment,” in The Natural Resources Trap: Private Investment without Public Commitment. William Hogan and Federico Sturzenegger, eds.. Cambridge, MA: MIT Press. Truitt, F. J. (1970). “Expropriation of Foreign Investment: Summary of the Post World War II Experience of American and British Investors in the Less Developed Countries.” Journal of International Business Studies, 1(2), 21–34. Wei, S. J. (2000). “How taxing is corruption on international investors?” Review of Economics and Statistics, 82(1), 1–11

Comment on Relative Price Variability and Inflation in Reinganum’s Consumer Search Model

There is now a large empirical literature on the effect of the aggregate inflation rate on (i) the dispersion of prices across goods or locations (relative price variability, or RPV) and (ii) the dispersion of inflation rates across goods or locations (relative inflation variability, or RIV). In the early part of this literature, empirical modelling is explicitly based on theoretical macroeconomic models incorporating signal extraction problems. However, more recent empirical research is less directly connected to theory, and several authors report results that are inconsistent with signal extraction models. In particular, while RIV is increasing in the absolute value of inflation shocks, RPV is a negative monotonic function of inflation shocks. In this paper, we show that such a result is predicted by consumer search models in the style of Reinganum (1979). A proper understanding of the dynamics of price dispersion in 21st century economies will require a renewed interest in the theoretical foundations of empirical models

Comment on Relative Price Variability and Inflation in Reinganum’s Consumer Search Model

There is now a large empirical literature on the effect of the aggregate inflation rate on (i) the dispersion of prices across goods or locations (relative price variability, or RPV) and (ii) the dispersion of inflation rates across goods or locations (relative inflation variability, or RIV). In the early part of this literature, empirical modelling is explicitly based on theoretical macroeconomic models incorporating signal extraction problems. However, more recent empirical research is less directly connected to theory, and several authors report results that are inconsistent with signal extraction models. In particular, while RIV is increasing in the absolute value of inflation shocks, RPV is a negative monotonic function of inflation shocks. In this paper, we show that such a result is predicted by consumer search models in the style of Reinganum (1979). A proper understanding of the dynamics of price dispersion in 21st century economies will require a renewed interest in the theoretical foundations of empirical models

Determinants of Relative Price Variability during a Recession: Evidence from Canada at the Time of the Great Depression

Most studies find that relative price variability (RPV) is a U-shaped or V-shaped function of anticipated inflation, and a V-shaped function of unanticipated inflation. One exception is Reinsdorf (1994), who finds that RPV in the United States during the 1980s recession was monotonically decreasing in unanticipated inflation. We suggest a reason for this difference, and test our conjecture using data from inter-war Canada. Our results indicate that in recessionary conditions a positive inflation shock does reduce RPV. However, this reduction is unlikely to correspond to higher consumer utility; this has implications for the conduct of monetary policy during a recession

Determinants of Relative Price Variability during a Recession: Evidence from Canada at the Time of the Great Depression

Most studies find that relative price variability (RPV) is a U-shaped or V-shaped function of anticipated inflation, and a V-shaped function of unanticipated inflation. One exception is Reinsdorf (1994), who finds that RPV in the United States during the 1980s recession was monotonically decreasing in unanticipated inflation. We suggest a reason for this difference, and test our conjecture using data from inter-war Canada. Our results indicate that in recessionary conditions a positive inflation shock does reduce RPV. However, this reduction is unlikely to correspond to higher consumer utility; this has implications for the conduct of monetary policy during a recession