Apart from FDI policies,another host-country variable frequently used is the "risk"of investing in a particular country.Again,including this variable in a study does make sense; however,the actual effect of political risk can be ambiguous.For example,researchers have theorized that political risks would reduce the incentives of a foreign firm to invest in a particular country and would in turn lead to a decrease of foreign ownership there.Nevertheless, the same political risks faced by foreign firms are also constraints on local firms of the host country.If these political risks pose threats to local firms more than to foreign firms,the latter may increase their ownership of assets in the country.The mechanism that works behind is likely to be that local firms are so constrained and are rendered uncompetitive and thus their assets can be acquired at a low price.> s Some of the existing researches have indeed provided empirical support for the idea that political risks can be associated with greater foreign ownership.For example,in one of the earliest studies that incorporated political risks,Contractor(1990)hypothesizes that lower political risks on the part of the host country should lead to majority equity holdings for US firms.But the regression results contradicted this hypothesis.Similarly,Asiedu and Esfahani(2001)find that better rule of law was in fact negatively correlated with the probability that a US firm would choose a wholly-owned subsidiary(as opposed to a joint venture).They argued that better rule of law may have promoted the productivity of FDI projects,and motivated the host government to seize rent from such projects. But they incorporated an explicit measure ofequity restrictions,which should have already captured the rent- capturing motivations. 55 Apart from FDI policies, another host-country variable frequently used is the “risk” of investing in a particular country. Again, including this variable in a study does make sense; however, the actual effect of political risk can be ambiguous. For example, researchers have theorized that political risks would reduce the incentives of a foreign firm to invest in a particular country and would in turn lead to a decrease of foreign ownership there. Nevertheless, the same political risks faced by foreign firms are also constraints on local firms of the host country. If these political risks pose threats to local firms more than to foreign firms, the latter may increase their ownership of assets in the country. The mechanism that works behind is likely to be that local firms are so constrained and are rendered uncompetitive and thus their assets can be acquired at a low price.5 5 Some of the existing researches have indeed provided empirical support for the idea that political risks can be associated with greater foreign ownership. For example, in one of the earliest studies that incorporated political risks, Contractor (1990) hypothesizes that lower political risks on the part of the host country should lead to majority equity holdings for US firms. But the regression results contradicted this hypothesis. Similarly, Asiedu and Esfahani (2001) find that better rule of law was in fact negatively correlated with the probability that a US firm would choose a wholly-owned subsidiary (as opposed to a joint venture). They argued that better rule of law may have promoted the productivity of FDI projects, and motivated the host government to seize rent from such projects. But they incorporated an explicit measure of equity restrictions, which should have already captured the rent￾capturing motivations