The Shield of Nationality: When Governments Break Contracts with Foreign Firms

Description

There is extraordinary variation in how governments treat multinational corporations in emerging economies; in fact, governments around the world have nationalized or eaten away at the value of foreign-owned property in violation of international treaties. This even occurs in poor countries, where governments are expected to, at a minimum, respect the contracts they make with foreign firms lest foreign capital flee. In The Shield of Nationality, Rachel Wellhausen introduces foreign-firm nationality as a key determinant of firms' responses to government breaches of contract. Firms of the same nationality are likely to see a compatriot's broken contract as a forewarning of their own problems, leading them to take flight or fight. In contrast, firms of other nationalities are likely to meet the broken contract with apparent indifference. Evidence includes quantitative analysis and case studies that draw on field research in Ukraine, Moldova, and Romania.

Rachel Wellhausen is an assistant professor of government and holds courtesy appointments at the McCombs School of Business and the Center for Russian, Eastern European, and Eurasian Studies at the University of Texas, Austin. She is co-editor of Production in the Innovation Economy (2014), an interdisciplinary volume emerging from the multiyear MIT project on the links between innovation and manufacturing in the United States and abroad. Wellhausen has published in the Journal of Conflict Resolution, International Studies Quarterly, Business and Politics, and Systems and Synthetic Biology. She has also worked in the political risk industry.

'Rachel Wellhausen has written a fantastic book that speaks to big questions on politics and the rule of law. Including new theory, rigorous quantitative data analysis, and rich case studies, this is a must-read for scholars and practitioners interested in the relationship between diplomacy and the protection of foreign investments abroad.' Nathan Jensen, The George Washington University School of Business 'Challenging the conventional wisdom that globalization has removed nationality from economic policies, this important book explains the conditions under which governments of emerging market economies intervene to pursue national goals at the expense of foreign companies. Wellhausen takes on big questions about the role of government and contracts while also providing a nuanced argument and rich empirical evidence to account for the variation in when states expropriate and when multinationals gain protection from the shield of nationality. This book will change how we think about globalization and foreign investment.' Christina Davis, Princeton University 'Rachel Wellhausen argues that, despite economic globalization, firm nationality plays a central role in determining the conditions under which governments honor their commitments to foreign firms. The Shield of Nationality employs a range of evidence to document the role of firm nationality, deftly pairing statistical analyses with in-depth, interview-based case studies.' Layna Mosley, University of North Carolina, Chapel Hill