Whose greed, whose grievance, and whose opportunity? Effects of foreign direct investments (FDI) on internal conflict

Abstract

This paper investigates the influence of foreign direct investments on the probability of civil conflict onset, contributing to the debate on globalization and civil conflict. I relax the common assumption that all forms of globalization are equivalent in their effects on civil conflict. I also incorporate the cross-sectoral heterogeneity of investments in existing arguments about the socioeconomic externalities of foreign direct investments as determinants of conflict. With long time horizons and managerial control of their foreign affiliates, foreign direct investors are strategic players aiming to maximize profits and uniquely able to alter their environment through socio-political channels. This distinguishes FDI from trade and foreign portfolio investments. Through a combination of political agency and socio-economic influences on grievance and greed among domestic groups, some types of FDI are likely to alleviate the risk of civil conflict (service sector FDI), while others exacerbate it (primary sector FDI). Analyses using a new data set of sector-specific FDI stock, 1980–2013, lend empirical support to the argument. Showing that economic globalization can have simultaneous positive and negative externalities, these findings are informative for the current dialogue on the role of global markets in sustainable development.