Nationalization of multinational enterprise affiliates by competing host countries

It is widely believed that international capital flows may be impeded or distorted by the behaviour of capital-importing countries. For example, Eaton and Gersovitz (1981) showed that the risk of debt repudiation may constrain a country’s international borrowing. In Chapter 3 we suggested that taxation of MNE affiliates should not prevent or distort their undertaking direct investment when there is effective competition between potential host countries. We now turn to the other policy option dealt with in this study, i.e. nationalization.