Foreign Direct Investment and Entrepreneurial Capture in Pre-Conflict Liberia

Abstract

This paper investigates the capture of entrepreneurial activity in pre-conflict Liberia focusing on the distortions introduced by foreign direct investment (FDI), most notably by the Firestone Tire & Rubber Company. The process through which the existing institutions—established by the dominant coastal elite population—responded to this FDI and allocated domestic entrepreneurial talent into (i) monopsony rent-seeking behavior and (ii) the development of small, independent rubber farms encouraged by the foreign concession is discussed. This entrepreneurial capture, while profiting the ruling class, crippled the development of labor market competitiveness and labor market deepening and allowed for the continued disempowerment of the rural, tribal Liberians used as wage labor in the industry. Thus, rather than encouraging innovation and small and medium enterprises, the intersection of entrepreneurship and foreign direct investment in Liberia did little more than allow another channel for the dominant class to benefit from foreign capital inflows and further deepen the fragile fault line between the coastal and rural Liberians.