Underinvestment and Expropriation
David J Hebert*
Department of Economics; George Mason University, USA
- *Corresponding Author:
- David J Hebert
Department of Economics
George Mason University, USA
E-mail: [email protected]
Received Date: July 02, 2013; Accepted Date: July 17, 2013; Published Date: July 19, 2013
Citation: Hebert DJ (2013) Underinvestment and Expropriation. J Stock Forex Trad 2:107 doi: 10.4172/2168-9458.1000107
Copyright: © 2013 Hebert DJ. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
This paper argues that there are several factors that investors must take into account when choosing to invest or not. One of the most important factors, which goes largely undiscussed in existing literature, is the behavior of governments undergoing political reform. Specifically, the temptation to renege on prior agreements becomes stronger over time. This causes investors to make fewer investments, thus giving markets an appearance of underinvestment. The degree of underinvestment, however, can be used as an indicator for how likely investors believe government expropriation is in particular industries.