The Effects of Economic Sanctions on Foreign Asset Expropriation

• Author: Hoon Lee,David Lektzian,Glen Biglaiser
• DOI: http://doi.org/10.1177/00220027221118250
• Published date: 01 February 2023
• Date: 01 February 2023
• Subject Matter: Articles

Article

Journal of Conf‌lict Resolution

2023, Vol. 67(2-3) 266–296

© The Author(s) 2022

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DOI: 10.1177/00220027221118250

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The Effects of Economic

Sanctions on Foreign Asset

Expropriation

Hoon Lee

1

, David Lektzian

1

, and Glen Biglaiser

2



Abstract

Studies suggest that home countries impose economic sanctions following host sta te

expropriation of home f‌irms. However, and not addressed in the empirical literature, is

the possibility that sanctions lead targeted countries to nationalize f‌irms from sender

countries. Using bilateral expropriation data from 1985 to 2010, and controlling for

endogeneity issues, we f‌ind that sanctions signif‌icantly increase expropriation risk,

encouraging targeted states to inf‌lict pain in a reciprocal manner on sender countries .

Expropriations also enable targeted nations to acquire economic assets from foreign

f‌irms, undermining the restricting goals of sanctioning states, and provide opportunities

for leaders to show political resolve at home by standing up to senders. Our results are

robust using monadic or dyadic data and different statistical methods, indicating an-

other sanction-busting strategy used by targeted countries.

Keywords

expropriation, economic sanctions, multinational corporations, sanction busting

Introduction

Since the end of World War II, the importance of economic sanctions has grown as a

tool sender countries use to change targeted states’foreign policy behavior (Hufbauer

1

Texas Tech University, Lubbock, TX, USA

2

University of North Texas, Denton, TX, USA

Corresponding Author:

Glen Biglaiser, Department of Political Science, University of North Texas, 1155 Union Circle #305340,

Denton, TX 76203, USA.

Email: gbiglais@gmail.com

et al. 2007;Morgan et al. 2014). During much the same time period, countries par-

ticularly from developing areas have expropriated assets of multinational corporations

(MNCs), whose headquaters are commonly located in developed countries. The link

between economic coercion and asset expropriation has not gone unnoticed in the

sanctions literature. Some case studies have identif‌ied a relationship between na-

tionalization and economic sanctions (Lamrani 2013;Olson 1975;Schreiber 2011),

where sanctions serve as a legal remedy in response to expropriation (Drury 2005;Fisk

2000;Hufbauer et al. 2007). We consider the reverse scenario, where targeted countries

nationalize MNCs from sender countries as a reply to sanctions.

In the economic coercion literature, sender countries seek to inf‌lict high costs on

target states by restricting trade, foreign direct investment (FDI), and foreign

currency f‌lows.

1

In response, targeted countries use different strategies to limit

losses from sanctions, such as seeking alternate foreign trade partners or investors,

or incurring higher sovereign debt to replace lost capital (Early 2009,2015;

Lektzian and Biglaiser 2013). However, we anticipate that targeted countries may

also employ appropriation to bust sanctions. Although expro priation has decreased

relative to the 1960s and 1970s, when host countries appropriated more than

1600 foreign f‌irms, nationalization has witnessed a bit ofa comeback since the early

2000s with more than 200 f‌irms falling into state hands (Hajzler 2012,2014;Hajzler

and Rosborough 2016).

Targeted countries have incentives for expropriating sender nations’private f‌irms.

Appropriations of sender country f‌irms allow targeted countries to indirectly inf‌lict pain

on sanctioning states. Nationalization, especially in natural resource sectors, where

investments require large initial capital infusions, produce signif‌icant losses for MNCs

and their shareholders in sender countries (Kobrin 1980,1984). Expropriations without

adequate compensation, which are illegal under international law, can be interpreted by

the targeted state as a countermeasure to sanctions, if the initial sanctions are deemed to

be illegal acts. In this case, expropriations could be seen as the target taking something

of proportional reciprocal value to the sender’s initial restrictions on the target’sf‌irms

(Alexander 2009;Happold and Eden 2016). By acting in a tit-for-tat manner with

sender countries, targeted states indirectly levy costs on senders that they could not

otherwise impose against more militarily and economically powerful countries.

Expropriations also bring economic benef‌its to targeted countries. Targeted states

obtain foreign f‌irm assets, spurring capital growth, as sanctioned states export products

previously traded by the MNCs or acquire goods they used to import, saving foreign

exchange earnings (Selden 1999). By accumulating capital via foreign asset expro-

priation, the targeted states also reduce currency crises resulting from sanctions (Peksen

and Son 2015). Nationalizations also increase resources for politicians to pay off

groups, enhancing the leadership’s survival (Peksen 2017). Further, hardline policies

such as appropriation enable leaders in targeted countries to show political resolve at

home by standing up to sender nations, scoring political points with their domestic

constituents (Grossman, Manekin, and Margalit 2018;Kobrin 1987, 614). While

nationalizations could affect both domestic and foreign f‌irms, political leaders in

Lee et al. 267