The political economy of foreign direct investment during internal armed conflict

Zafeer, Shaf (2015). The political economy of foreign direct investment during internal armed conflict. University of Birmingham. Ph.D.

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Abstract

It is commonly assumed that armed conflict deters foreign direct investment (FDI) and encourages capital flight and portfolio substitution, yet recent evidence suggests that foreign investors are not uniformly risk-adverse with respect to investments in conflict zones. The willingness of foreign investors to put funds at risk in conflict zones runs counter to the conventional wisdom in the academic literature, which is based on the proposition that armed conflict is bad for business. The complex relationship between armed conflict and FDI presents a counterintuitive research puzzle for the fields of security studies and international political economy, both of which assume that armed conflict increases ‘capital flight’ as mobile foreign investors seek more stable returns elsewhere.
This thesis uses a multi-method approach that incorporates a large-\(N\) study based on descriptive statistics as well as a structured focused comparison of internal armed conflicts in Iraq (2003-2010) and Afghanistan (2003-2012) that followed US-led military campaigns in order to address the question: \(Why\) \(do\) \(countries\) \(involved\) \(in\) \(internal\) \(armed\) \(conflict\) \(continue\) \(to\) \(attract\) \(FDI?\) In contrast to many of the cases in the large-\(N\) study, the small-\(n\) comparative analysis focuses on two cases in which an external military campaign preceded the emergence of intra-state violence.
The investigation of FDI in the cases of Afghanistan and Iraq is significant because each country experienced a counterinsurgency against the external military intervention, which would be expected to further increase the risk premium for foreign investors. The thesis offers new analytical insights on the armed conflict-FDI relationship through investigating the reasons why foreign investors may decide to invest in countries affected by on-going armed conflict. The central argument presented in this thesis is that the presence of an external military intervention (EMI) involving ‘boots on the ground’ sends a positive signal about improvements in a country’s investment climate, thereby altering how foreign investors assess the risks associated with investment in conflict zones.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

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