Peace and conflict at different stages of the FDI lifecycle

Colin M. Barry

Review of International Political Economy, 2018, vol. 25, issue 2, 270-292

Abstract: Theoretically, instability and violence should deter foreign investment. Empirically, the evidence has been inconsistent. I highlight two key deficiencies in existing research, and present a more nuanced theoretical framework for considering this relationship. First, I make the case that the costs and risks associated with conflict are a function of both intensity and duration. Both should be accounted for. Second, I argue that the logic governing multinational corporations' (MNC) behavior changes post-entry into the host country. Combining these two insights, I argue that firms’ sensitivity to conflict, and that the particular signals they respond to, vary in predictable ways across different stages of the FDI lifecycle. I test the according hypotheses using firm-level foreign investment data, and find supporting evidence. Multinationals look for sustained peace when pursuing new ventures, but prove resilient to all but the most intense and persistent conflicts after the costs of entry have been sunk.

Date: 2018
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DOI: 10.1080/09692290.2018.1434083

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