Expropriation of Multinational Firms: The Role of Domestic Market Conditions and Domestic Rivalries

The causes of expropriation of Multinational Firms (MNFs) by their host governments are investigated, based on social welfare analysis and also on public choice theory. A key feature is the presence of Cournot‐Nash rivalry with domestic firms. Thus, the likelihood of expropriation differs according to whether or not a domestic rival exists. The likelihood also depends on the MNF's initial technological superiority over domestic technology, the host country's demand structure, the type of control to be exercised over the expropriated firm (private vs. state) and the strategic behavior of the MNF, ex anti, when under threat of expropriation.