Brewing Violence: Foreign Investment and Civil Conflict

56 Pages Posted: 13 Jul 2017 Last revised: 14 Nov 2017

Pablo M. Pinto

University of Houston

Boliang Zhu

Pennsylvania State University - Department of Political Science

Date Written: November 13, 2017

Abstract

We explore the link between inward foreign direct investment (FDI) and intrastate armed conflict in developing countries. We argue that the activity of multinational corporations affects market structure, contributing to rent creation; concerns about the control and distribution of those rents in turn increase rebel groups' and governments' incentive to fight. State capacity, on the other hand, alleviates the conflict-promoting effect of inward FDI. Strong states are capable of deterring rebellions, addressing citizens' demands through institutionalized channels, and credibly committing to a negotiated agreement. Using data from a sample of non-OECD countries from 1970 to 2013 and an instrumental variable strategy to address potential endogeneity bias, we find strong support for our hypotheses. We further examine the underlying mechanism, showing that inward FDI increases the probability of conflict onset through contributing to market concentration. Our findings have important implications for understanding the link between economic interdependence and security.

Keywords: Foreign Direct Investment, Multinational Corporations, Economic Rents, State Capacity, Civil Conflict, Instrumental Variable

Suggested Citation

Pinto, Pablo M. and Zhu, Boliang, Brewing Violence: Foreign Investment and Civil Conflict (November 13, 2017). Available at SSRN: https://ssrn.com/abstract=2998123 or http://dx.doi.org/10.2139/ssrn.2998123

Pablo M. Pinto

University of Houston ( email )

TX 77204-3011
United States
7137432540 (Phone)

HOME PAGE: http://pablopinto.com

Boliang Zhu (Contact Author)

Pennsylvania State University - Department of Political Science ( email )

University Park, State College, PA 16801
United States

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