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How Does Violent Conflict Affect Investment Location Decisions? Evidence from Israel during the Intifada

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  • David Fielding

    (Department of Economics, University of Leicester and WIDER, United Nations University, Helsinki)

Abstract

Time-series data from Israel are used to investigate the dynamics of the causal links between the intensity of the Israeli–Palestinian conflict and capital flight. A number of dimensions of the conflict are considered, including Israeli and Palestinian fatalities, the incidence of Green Line border closures and growth of Jewish settlements in the West Bank and Gaza. Capital flight is measured as (the growth of) the fraction of their physical capital wealth that Israelis hold overseas. The fraction of Israeli capital wealth held outside the country exhibits considerable variation over time; so do indicators of the intensity of the Palestinian–Israeli conflict, even before the upturn in violence in September 2000. Using quarterly time-series data, the article shows that there is a high correlation between the two, conditional on economic conditions. This correlation is a consequence of a causal link that runs in both directions: more violence leads to more capital flight, but more capital flight is also a predictor of higher future levels of violence. Both effects are evident in the data even before September 2000. Under certain assumptions about the properties of the economic time-series, it is possible to infer from these results the amount of income that Israel would gain as a result of a complete cessation of violence.

Suggested Citation

  • David Fielding, 2004. "How Does Violent Conflict Affect Investment Location Decisions? Evidence from Israel during the Intifada," Journal of Peace Research, Peace Research Institute Oslo, vol. 41(4), pages 465-484, July.
    • Handle: RePEc:sae:joupea:v:41:y:2004:i:4:p:465-484
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    Cited by:

    1. Asongu, Simplice A. & Amankwah-Amoah, Joseph, 2018. "Mitigating capital flight through military expenditure: Insight from 37 African countries," Research in International Business and Finance, Elsevier, vol. 45(C), pages 38-53.
    2. Denis Larocque & Genevieve Lincourt & Michel Normandin, 2010. "Macroeconomic Effects Of Terrorist Shocks In Israel," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(4), pages 317-336.
    3. René Cabral & André Varella Mollick & Eduardo Saucedo, 2019. "Foreign Direct Investment In Mexico, Crime, And Economic Forces," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 68-85, January.
    4. Gutiérrez Sanín, Francisco, 2009. "Stupid and expensive?: a critique of the costs-of-violence literature," LSE Research Online Documents on Economics 28496, London School of Economics and Political Science, LSE Library.
    5. Efobi, Uchenna & Asongu, Simplice, 2016. "Terrorism and capital flight from Africa," International Economics, Elsevier, vol. 148(C), pages 81-94.
    6. Seelanatha, Lalith & Ihalanayake, Ranjith, 2019. "War and peace times, interest margin and commercial bank operations: A case of the Sri Lankan banking sector," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 9(2), pages 122-141.
    7. Umer Shahzad & Fengming Qin, 2019. "New Terrorism and Capital Flight: Pre and Post Nine Eleven analysis for Asia," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 465-487, May.
    8. Simplice Asongu & Joseph Amankwah-Amoah, 2016. "Military expenditure, terrorism and capital flight: Insights from Africa," Working Papers of the African Governance and Development Institute. 16/018, African Governance and Development Institute..
    9. Godwin Okafor & Obiajulu Ede, 2023. "Kidnapping rate and capital flight: Empirical evidence from developing countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2590-2606, July.
    10. Mina Glambosky & Kim Gleason & Joan Wiggenhorn, 2011. "Joint ventures between US MNCs and foreign governments," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 7(3), pages 238-258, June.
    11. Babet Hogetoorn & Michiel Gerritse, 2021. "The impact of terrorism on international mergers and acquisitions: Evidence from firm-level decisions," Journal of Peace Research, Peace Research Institute Oslo, vol. 58(3), pages 523-538, May.
    12. Bar-El Raphael, 2005. "A Typology of Regional Cooperation Projects," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 11(2), pages 1-17, November.
    13. Arcade Ndoricimpa, 2017. "Analysis of Capital Flight from Burundi," Working Papers 343, African Economic Research Consortium, Research Department.
    14. World Bank [WB], 2017. "Global Investment Competitiveness Report 2017/2018 : Foreign Investor Perspectives and Policy Implications," Working Papers id:12293, eSocialSciences.
    15. Selami Sezgin & Sennur Sezgin, 2011. "Economics of Conflict: Turkey’s Experience," Chapters, in: Derek L. Braddon & Keith Hartley (ed.), Handbook on the Economics of Conflict, chapter 15, Edward Elgar Publishing.
    16. Jülide Yildirim & Nadir Öcal, 2013. "Analysing The Determinants Of Terrorism In Turkey Using Geographically Weighted Regression," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(3), pages 195-209, June.
    17. Tekin Kose & Julide Yildirim & Gizem Tanrivere, 2017. "The Effects of Terrorism on Happiness: Evidence from Turkey," EcoMod2017 10229, EcoMod.
    18. Rubin, Ofir D. & Ihle, Rico & Kachel, Yael & Goodwin, Barry K., 2013. "The impact of violent political conflict on commodity prices: The Israeli food market," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150961, Agricultural and Applied Economics Association.
    19. World Bank Group, 2018. "Global Investment Competitiveness Report 2017/2018," World Bank Publications - Books, The World Bank Group, number 28493, December.
    20. Sini, Snow & Abdul-Rahim, A.S. & Chin, Lee & Said, Rusmawati & Sulaiman, Chindo, 2022. "Natural resources’ impact on capital flow and conflict relationship in Africa: A novel insight from GMM and quantile regression," Resources Policy, Elsevier, vol. 78(C).

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