Brewing Violence: Foreign Investment and Civil Conflict

61 Pages Posted: 13 Jul 2017 Last revised: 23 Jul 2018

See all articles by Pablo M. Pinto

Pablo M. Pinto

University of Houston

Boliang Zhu

Pennsylvania State University - Department of Political Science

Date Written: July 13, 2018

Abstract

Two prominent features in current world affairs are the unprecedented levels of global economic integration and the growing incidence of intrastate violence. We develop and test a novel argument linking foreign direct investment (FDI) to intrastate armed violence in developing countries. We argue that the entry and presence of multinational corporations causes market concentration in host countries, resulting in high rents. This in turn increases the return to appropriation or create opportunities for rebel groups to enhance their fighting capabilities, thereby increasing the likelihood of conflict. We further posit that state capacity mitigates the positive association between FDI and conflict. Strong states have the capacity to deter rebellions and address citizens' demands through institutionalized mechanisms. Using a sample of developing countries from 1970 to 2013 and addressing endogeneity bias, we find strong support for our hypotheses. Our findings have important implications for understanding the link between economic interdependence and conflict.

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 (July 13, 2018). 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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