1. This concept of the political process is more fully developed in Becker's model of interest group competition. See Becker, Gary S., “A Theory of Competition Among Pressure Groups for Political Influence,” Quarterly Journal of Economics 98 (08 1983)CrossRefGoogle Scholar.

2. See Willett, Thomas D., “Some Aspects of the Public Choice Approach to International Economic Relations,” Claremont Center for Economic Policy Studies Working Paper (Claremont, Calif., 1980)Google Scholar.

3. See, for example, North, Douglass C., Structure and Change in Economic History (New York: W. W. Norton, 1981)Google Scholar.

4. For a survey of public choice theory, see Mueller, Dennis C., Public Choice (Cambridge: Cambridge University Press, 1979)Google Scholar, and for a description of the application of public choice to international relations, see Frey, Bruno S., “The Public Choice View of International Political Economy,” International Organization 38 (Winter 1984)CrossRefGoogle Scholar.

5. For a treatment of the modern mercantilist approach, see Gilpin, Robert, “Three Models of the Future,” in Bergsten, C. Fred and Krause, Lawrence B., eds., World Politics and International Economics (Washington, D.C.: Brookings Institution, 1975)Google Scholar.

6. See Willett, Thomas D., ed., Political Business Cycles: The Political Economy of Money, Inflation and Unemployment (San Francisco: The Pacific Institute, 1987)Google Scholar.

7. See Bhagwati, Jagdish N. and Srinivasan, T. N., “Revenue Seeking: A Generalization of the Theory of Tariffs,” Journal of Political Economy 88 (12 1980)CrossRefGoogle Scholar and Colander, David G., ed., Neoclassical Political Economy: The Analysis of Rent-Seeking and DUP Activities (Cambridge, Mass.: Ballinger, 1984)Google Scholar for analysis of directly unproductive profit-seeking and rent-seeking, andBreton, Albert, The Economic Theory of Representative Government (Chicago: Aldine, 1974)CrossRefGoogle Scholar for a classic model of political competition.

8. See Bayard, Thomas O., Pelzman, Joseph, and Perez-Lopez, Jorge, “Stakes and Risks in Economic Sanctions,” World Economy 6 (03 1983)CrossRefGoogle Scholar.

9. For a classic treatment of the theory of, and evidence for, capital market efficiency, see Fama, E. F., “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance 25 (05 1970)CrossRefGoogle Scholar.

10. For example, see Hufbauer, Gary Clyde and Schott, Jeffrey J., Economic Sanctions Reconsidered: History and Current Policy (Washington D.C.: Institute for International Economics, 1985)Google Scholar and Daoudi, M. S. and Dajani, M. S., Economic Sanctions: Ideals and Experience (London: Routledge & Kegan Paul, 1983)Google Scholar.

11. See, for instance, the reports in the Los Angeles Times (7 June 1986). It is also noteworthy that, while universities are often in the forefront of the divestment campaign, they have seldom adopted a policy of refusing gifts and contributions from firms doing business in South Africa. Presumably this reflects the high cost of such a policy to those espousing it, relative to its payoff to them.

12. Investor Responsibility Research Center Inc., Divestment Action Roundup (Washington, D.C.: IRRC, 04 1986)Google Scholar.

13. Investor Responsibility Research Center Inc., South Africa Review Series (Washington, D.C.: IRRC, 05 1986)Google Scholar.

14. See the Los Angeles Times (27 September 1986).

15. A different approach which does seem to have a direct impact on firms is selective purchasing—adopted by a number of city and county governments, including Los Angeles and New York. This variant of a consumer boycott renders firms ineligible for contracts, reducing expected sales and net revenue. In at least one case—Salomon, Inc.—withdrawal from South Africa is attributed partly to the threat of exclusion from municipal securities underwriting. See the Los Angeles Times (7 June 1986).

16. See the Boston Company, Managing a South African Free Equity Portfolio (Boston, Mass.: Boston Company, 1 08 1985)Google Scholar.

17. The Boston Company's recent study, Managing a South African Free Equity Portfolio, compares the performance of those S & P companies which have employees in South Africa with the performance of those which do not—and finds that the so-called “South Africa Free Equity” (SAFE) portfolio strongly outperforms the other from the beginning of 1984 to the end of the first quarter of 1986. There are several reasons for the divergence between our results and those of the Boston Company. First, to contrast their two indices, the Boston Company weights both portfolios by market capitalization, which serves to bias their findings in favor of the SAFE portfolio. Their index numbers place a prominent weight on large firms such as telephone utilities, which generally performed well during the test period but were not present in South Africa; and they also weight heavily several major oil companies which are active in South Africa and which did poorly in 1984–86 not because of their South African interests, but because of the falling world oil price. Second, the set of firms identified by the Boston Company as South Africa-active differs from the set of South Africa-active firms which we obtained from recent data provided by the Investor Responsibility Research Center Inc., Foreign Investment in South Africa and Namibia (Washington, D.C.: IRRC, 1986)Google Scholar. The Boston Company treats a few firms as part of the South African group, but we exclude them because their level of capitalization in South Africa is small (below $1 million). Since we are interested in disinvestment, firms with minimal capital currently invested in South Africa (such as small agencies or offices with one or two employees) are hardly relevant. We also found several firms with large numbers of employees and large amounts of capital in South Africa which the Boston Company inexplicably includes in the non-South Africa group.

18. See The Value Line Investment Survey (22 August 1986), p. 1301; and (17 October 1986), p. 620.

19. This issue has received much attention in the finance literature. For a recent study, see Grossman, Blake R. and Sharpe, William F., “Financial Implications of South African Divestment,” Financial Analysts Journal 42 (07–08 1986)CrossRefGoogle Scholar.

20. See, for example, Knorr, Klaus, The Power of Nations (New York: Basic Books, 1970)Google Scholar and Doxey, Margaret P., Economic Sanctions and International Enforcement, 2d ed. (New York: Oxford University Press, 1980)CrossRefGoogle Scholar. A more optimistic view of the effectiveness of sanctions is provided by Baldwin, David A., Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985)Google Scholar.

21. See Willett, Thomas D. and Jalalighajar, Mehrdad, “U.S. Trade Policy and National Security,” Cato Journal 3 (Winter 1983–1984), p. 723Google Scholar. These substitutability issues, with specific reference to the case of disinvestment, are dealt with in detail in the next section of this article.

22. See The Economist (9 August 1986).

23. See the Los Angeles Times (15 September 1986).

24. See the Wall Street Journal (20 June 1986).

25. See the Wall Street Journal (13 June 1986).

26. Hufbauer, and Schott, , Economic Sanctions Reconsidered, p. 64Google Scholar.

27. Willett, and Jalalighajar, , “U.S. Trade Policy and National Security,“ pp. 724–25Google Scholar.

28. See the Natal Mercury (30 July 1986) and the Los Angeles Times (6 July 1986).

29. See Bayard, , Pelzman, , and Perez-Lopez, , “Stakes and Risks in Economic Sanctions,” p. 75Google Scholar.

30. Willett, and Jalalighajar, , “U.S. Trade Policy and National Security,” p. 726Google Scholar.

31. See Daoudi, and Dajani, , Economic Sanctions, p. 161Google Scholar.

32. IRRC, Foreign Investment in South Africa and Namibia.

33. See Bayard, , Pelzman, , and Perez-Lopez, , “Stakes and Risks in Economic Sanctions,” pp. 77–85Google Scholar.

34. See Kaempfer, William H. and Lowenberg, Anton D., “A Model of the Political Economy of International Investment Sanctions: The Case of South Africa,” Kyklos 39 (fasc. 3, 1986)CrossRefGoogle Scholar.

35. This process, in which South Africans substitute domestic assets for foreign assets, is facilitated even further by the dual exchange rate. Capital flows between South Africa and the rest of the world are transacted in “financial rands” while trade flows are transacted in “commercial rands” (the financial rand is fixed at a considerable discount below the commercial rand). South African residents can profit by selling goods abroad at the commercial exchange rate and using the dollars to purchase assets in South Africa at the financial rate.

36. See Giliomee, Hermann and Schlemmer, Lawrence, “The Influx Control Fence,” in Giliomee, and Schlemmer, , eds., Up Against the Fences: Poverty, Passes and Privilege in South Africa (Cape Town: David Philip, 1985)Google Scholar.

37. In 1981, fewer than 1,900 U.S. citizens immigrated to South Africa. Between 1965 and 1983, the total number of economically active immigrants was 321,912, compared to South Africa's total white population of about 4.5 million in 1984. See Official Yearbook of the Republic of South Africa (Pretoria: Department of Foreign Affairs, 1985), pp. 32, 288Google Scholar.

38. Bayard, , Pelzman, , AND Perez-Lopez, , “Stakes and Risks in Economic Sanctions,” p. 76Google Scholar.

39. Both the economic and political effects of disinvestment sanctions (alone and in combination with trade sanctions) have been discussed in Kaempfer and Lowenberg, “A Model of the Political Economy,” and in Kaempfer, William H., Lehman, James A. and Lowenberg, Anton D., “The Economics of the Call for Anti-Apartheid Investment Sanctions,” Social Science Quarterly (forthcoming, 1987)Google Scholar. This article, however, implicitly assumes that investment sanctions are applied against South Africa while all other types of punitive economic measures are either absent or unchanged. For a treatment of the combined effects of disinvestment and embargoes on the sale of strategic goods to South Africa, see Kaempfer, and Lowenberg, , “The Political Economy of Apartheid and Oil Sanctions,“ Claremont Center for Economic Policy Studies Working Paper (Claremont, Calif. 1986)Google Scholar.

40. See Becker, Charles, “The Impact of Economic Sanctions on Southern Africa,“ Department of Economics Working Paper No. 86-W10 (Nashville, Tenn.: Vanderbilt University, 04 1986)Google Scholar.

41. See, for instance, Wall Street Journal (20 June 1986). In fact, the U.S. sanctions imposed in the fall of 1986 prohibit new investment.

42. See Lowenberg, Anton D., “Towards an Economic Theory of the Apartheid State.“ Ph.D. diss., Department of Economics, Simon Fraser University, Burnaby, B.C., Canada, 07 1984Google Scholar. This model is consistent with Becker's analysis of interest group competition in “A Theory of Competition among Pressure Groups for Political Influence,” and with North's characterization of the “interest group” state in Structure and Change.

43. See Kaempfer and Lowenberg, “A Model of the Political Economy.”

44. Lipton, Merle, Capitalism and Apartheid (Totowa, N.J.: Rowman and Allanheld, 1985) pp. 6–9Google Scholar.

45. See Lipton, , Capitalism and Apartheid, p. 8Google Scholar.

46. Findlay and Lundahl suggest a direct link which allows divestment pressures from abroad to facilitate a change in the political choices of whites in South Africa without necessarily entailing disinvestment. In their model, the divestment campaign uniformly taxes foreign investment in South Africa. This tax raises the required rate of return in South Africa so that foreign wealth holders continue to invest in that country. By means of a factor-price frontier relationship, the marginal product of labor, and hence the wage rate consistent with the higher rate of return, is decreased. If the white labor force wishes to maintain its wage, it would have to concede to a greater influx of black labor into the industrial sector of the economy (i.e., a diminution of apartheid). Since white and black labor are assumed to be complementary in production, this will raise the marginal product of white labor, thus offsetting divestment's negative impact on white wages. See Findlay, Ronald and Lundahl, Mats, “Racial Discrimination, Dualistic Labor Markets and Foreign Investment,” Columbia University Discussion Paper Series No. 308 (New York, 1986)Google Scholar.

47. While it is certainly possible that sanctions could be removed in the future if the South African government makes the requisite political concessions, foreign firms' reinvestment might be costly. Even a trade embargo might not be easily reversed if South Africans have, meanwhile, secured alternative sources of supply or developed domestic substitutes.

48. See Kaempfer, Lehman, and Lowenberg, “Anti-Apartheid Investment Sanctions.” This paper also points out that one of the motives for divestment and disinvestment pressure on the part of interest groups within the United States might be the “consumption” of a moral stance, so that a “logic” for disinvestment exists separately from its economic effects on South Africa or its political effects on apartheid. The call for disinvestment might serve as a symbol to mobilize, educate, and organize disparate anti-apartheid individuals and groups within the United States.

49. This presupposes an economic theory of revolution similar to that of Tullock, Gordon, “The Paradox of Revolution,“ Public Choice 11 (Fall 1971)CrossRefGoogle Scholar.

50. See the Wall Street Journal (5 December 1986).

51. See the Natal Mercury (5 August 1986).

52. See the Natal Mercury (30 July 1986 and 12 December 1985).

53. See the Wall Street Journal (27 February 1986).

54. Relly, Gavin, “The Costs of Disinvestment,” Foreign Policy 63 (Summer 1986), p. 145Google Scholar.