The impact of civil war on foreign direct investment flows to developing countries

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Abstract

We investigate the impact of civil war on foreign direct investment (FDI) flows to developing countries. We employ a new data-set that disaggregates FDI inflows to primary, secondary and tertiary sectors. Second, we control for a richer set of economic and institutional variables that could determine FDI inflows including population, gross domestic product (GDP) per capita, the degree of trade openness, exchange rate variability, inflation, the governance structure of the host country using International Country Risk Guide data and its regime type using the POLITY autocracy–democracy data. We also address the reverse causality between FDI and conflict and the potential endogeneity of explanatory variables by employing dynamic system generalised method of moments (GMM) techniques in estimation. Our results indicate that primary sector FDI flows to developing countries are not significantly affected by civil war, whereas secondary and tertiary sectors FDI are more sensitive to such outbreak, potentially leading to reversals of existing FDI. Among institutional variables, government stability and control of corruption are more significant compared to regime type, law and order, and bureaucratic quality.
Original languageEnglish
Pages (from-to)488-507
JournalThe Journal of International Trade & Economic Development
Volume26
Issue number4
Early online date12 Jan 2017
DOIs
Publication statusPublished - 2017

Bibliographical note

This is an Accepted Manuscript of an article published by Taylor & Francis in The Journal of International Trade & Economic Development on 12 Jan 2017, available online: http://www.tandfonline.com/10.1080/09638199.2016.1270347

Keywords

  • FDI
  • civil war
  • governance
  • democracy
  • SYS-GMM

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