Abstract
How do inter-state conflicts affect foreign investment flows to developing countries? Conventional wisdom says conflicts disrupt economic interactions. This article develops and tests two competing causal mechanisms of the wisdom by focusing on foreign investment flows to developing countries. The first hypothesis states that conflicts carry enduring risk to foreign investors, making conflict-prone countries persistently less attractive. The second hypothesis says that the risk of conflict is ephemeral, allowing foreign investment to recover during peace-time. A monadic analysis of 95 developing countries from 1980 to 2000 provides strong evidence for the enduring risk hypothesis. However, the finding is limited by both the level of conflict hostility and the ex post immobility of foreign investment. The enduring risk of conflicts is significant for both actual warfare rather than use of force, and foreign direct investment (FDI) rather than foreign portfolio investment (FPI). The finding is robust in a series of subsample analyses, which reflect the distinctive experiences of developing countries in the late 20th century.
Get full access to this article
View all access options for this article.
References
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
