Expropriation as an Attempt to Control Foreign Firms in LDCs: Trends from 1960 to 1979

Abstract

Expropriations in 79 LDCs are analyzed from 1960 to 1979, with a concentration of takeovers noted in the early 1970s and a significant decline thereafter. Four hypotheses are suggested to explain this pattern. First, nationalization of sectors such as oil, mining and utilities, where foreign ownership, per se, is incompatible with economic control or national security, was virtually complete by 1975. Second, as time since independence passed, LDCs gained confidence in their own identities and their perceptions of foreign direct investment became less symbolic and more functional and pragmatic. Third, and most importantly, as bargaining power, technical and administrative capabilities, and knowledge of multinational firms increased, states became more confident of their ability to achieve control indirectly through regulation and, in industries where ownership was not of the essence, saw direct control through expropriation as less effecient and effective. Last, the economic problems faced by many of the LDCs in the late 1970s increased the attractiveness of foreign investment and/or constrained expropriation.