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Under One Roof: Supply Chains and the Protection of Foreign Investment

Published online by Cambridge University Press:  07 April 2016

LESLIE JOHNS  and
RACHEL L. WELLHAUSEN
LESLIE JOHNS*
Affiliation:
University of California, Los Angeles
RACHEL L. WELLHAUSEN*
Affiliation:
University of Texas at Austin
*
Leslie Johns is Associate Professor of Political Science, University of California, Los Angeles, CA (ljohns@polisci.ucla.edu).
Rachel L. Wellhausen is Assistant Professor of Government, University of Texas at Austin, Austin, TX (rwellhausen@utexas.edu).
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Abstract

We argue that economic links, such as supply chains, can create a common roof that protects foreign investors in host countries that lack strong institutions to protect property rights. Supply chains link the activities of firms: when a host government breaks a contract with one firm, other firms in the supply chain are harmed. These partner firms therefore have incentive to protect one another’s property rights. This leads to the key implication of our argument: host governments are less likely to violate the property rights of firms that are more tightly linked with other firms in the host economy. We test our argument with cross-national data on investment arbitration, a survey of US multinational subsidiaries in Russia, and case studies from Azerbaijan. Our findings imply that one benefit of outsourcing in developing and transition economies is the creation of a network of partner firms that protect each other’s property rights.

Type
Research Article
Information
American Political Science Review , Volume 110 , Issue 1 , February 2016 , pp. 31 - 51
Copyright
Copyright © American Political Science Association 2016 

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