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The Effect of Sanctions on U.S. Foreign Direct Investment

Published online by Cambridge University Press:  28 July 2011

Glen Biglaiser  and
David Lektzian
Glen Biglaiser
Affiliation:
Texas Tech University, Lubbock. E-mail: gbiglais@yahoo.com
David Lektzian
Affiliation:
Texas Tech University, Lubbock. E-mail: david.lektzian@ttu.edu
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Abstract

For years, the United States has imposed economic sanctions to compel countries to alter their behavior. An important concern is whether government sanctions influence private foreign direct investment (FDI) decisions, the largest source of foreign capital. In the first study to assess empirically the relationship between economic sanctions and FDI, we consider whether U.S. sanctions influence U.S. FDI inflows into targeted countries. Using panel data for 171 countries from 1965 to 2000, we find strong evidence that U.S investors pull out of countries targeted for U.S sanctions prior to their imposition. This disinvestment is not permanent and investment tends to return after the sanctions are imposed. The results provide support for FDI studies that show the effect of risk on investor decision making.

Type
Research Notes
Information
International Organization , Volume 65 , Issue 3 , July 2011 , pp. 531 - 551
Copyright
Copyright © The IO Foundation 2011

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