Dodging Bullets: The Heterogeneous Effect of Political Violence on Greenfield FDI

56 Pages Posted: 16 Dec 2016

See all articles by Caroline T. Witte

Caroline T. Witte

Erasmus University Rotterdam (EUR) - Department of Applied Economics

Martijn Burger

Erasmus University Rotterdam (EUR) - Erasmus Happiness Economics Research Organization (EHERO)

Elena Ianchovichina

World Bank

Enrico Pennings

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Date Written: December 13, 2016

Abstract

The relationship between political violence and greenfield foreign direct investment is contingent on the type of violence, characteristics of the investment-receiving sector, and extent to which the investing firm is geographically diversified. This paper presents an analysis with a dynamic fixed effects model for a panel of 90 developing countries from 2003 to 2012. The analysis shows that nationwide political conflict is negatively associated with total and non-resource-related greenfield foreign direct investment, but not with resource-related greenfield foreign direct investment. The insensitivity to political conflict of multinational firms in the resource sector is associated with the high profitability of natural resource extraction and the companies' geographic constraints on location choice during the period of estimation. In the non-resource sector, the less geographically diversified firms are most sensitive to the risk of conflict.

Keywords: Energy and Environment, Energy and Mining, Energy Demand, Conflict and Fragile States

Suggested Citation

Witte, Caroline T. and Burger, Martijn and Ianchovichina, Elena and Pennings, Enrico, Dodging Bullets: The Heterogeneous Effect of Political Violence on Greenfield FDI (December 13, 2016). World Bank Policy Research Working Paper No. 7914. Available at SSRN: https://ssrn.com/abstract=2885543

Caroline T. Witte (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Applied Economics ( email )

Netherlands

Martijn Burger

Erasmus University Rotterdam (EUR) - Erasmus Happiness Economics Research Organization (EHERO) ( email )

P.O. Box 1738
Rotterdam, 3000
Netherlands

Elena Ianchovichina

World Bank ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-8910 (Phone)
202-522-1159 (Fax)

Enrico Pennings

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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