Foreign direct investment and civil violence in Sub‐Saharan Africa

Ahsan Kibria, Reza Oladi and Sherzod Akhundjanov

The World Economy, 2020, vol. 43, issue 4, 948-981

Abstract: Despite the steady growth in foreign direct investment (FDI) flow into Sub‐Saharan Africa (SSA), which is facilitated by the United Nations "2030 Agenda for Sustainable Development", economic development in SSA countries remains relatively weak, due in part to frequent incidents of civil violence. The critics of FDI inflow into SSA posit that the cross‐border capital flow fuels civil conflict and unrest, whilst the proponents maintain that FDI inflow helps developing countries raise their economies. To reconcile these two views, this paper considers the impact of FDI on civil violence in SSA by distinguishing recipient industries of FDI. The results from a new general equilibrium theory suggest that an increase in resource‐directed FDI inflow to countries where the resource sector is skilled labour (unskilled labour) intensive reduces (increases, respectively) the risk of violence. Using a panel data consisting of 34 SSA countries for 1972–2013, the dynamic panel estimates provide support for our theoretical findings. In particular, an increase in FDI inflow reduces the risk of civil violence for skilled labour intensive fuel‐resource‐rich SSA countries. However, the likelihood of violence can increase in FDI inflow for countries that are rich in unskilled labour intensive non‐fuel, ore and other mineral resources.

Date: 2020
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