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The Double-Edged Sword of Foreign Direct Investment on Domestic Terrorism

Author

Listed:
  • Glen Biglaiser
  • Lance Y Hunter
  • Ronald J McGauvran

Abstract

This paper studies the effects of foreign direct investment (FDI) on domestic terrorism. Using a cross-national, time-series analysis of 114 countries from 1991–2017, and employing structural equation modeling to test a number of mediating factors, we find that the impact of FDI on domestic terrorism depends on the host state’s level of economic development. For host countries at higher-income levels, FDI boosts economic development and global integration promoting prosperity, increasing counterterrorism resources, and reducing the economic grievances that foster terrorism. Conversely, for lower-income host countries, increased FDI fuels higher domestic terrorism, as it intensifies clashes between traditional and modern elements within society, raises economic discrimination, heightens perceptions of economic insecurity, and subsequently leads to grievances directed against the state. Our results indicate a curvilinear relationship between FDI inflows and domestic terrorism, suggesting that FDI produces a double-edged sword between promoting economic development and increasing domestic terrorism in host states.

Suggested Citation

  • Glen Biglaiser & Lance Y Hunter & Ronald J McGauvran, 2023. "The Double-Edged Sword of Foreign Direct Investment on Domestic Terrorism," Journal of Conflict Resolution, Peace Science Society (International), vol. 67(9), pages 1647-1674, October.
    • Handle: RePEc:sae:jocore:v:67:y:2023:i:9:p:1647-1674
    DOI: 10.1177/00220027231153584
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    References listed on IDEAS

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    1. Muhammad Tariq Majeed & Eatzaz Ahmad, 2009. "An Analysis of Host Country Characteristics that Determine FDI in Developing Countries: Recent Panel Data Evidence," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 14(2), pages 71-96, Jul-Dec.
    2. repec:bla:kyklos:v:49:y:1996:i:3:p:331-52 is not listed on IDEAS
    3. Alan B. Krueger, 2007. "Introduction to What Makes a Terrorist: Economics and the Roots of Terrorism," Introductory Chapters, in: What Makes a Terrorist: Economics and the Roots of Terrorism, Princeton University Press.
    4. Walter Enders & Todd Sandler, 1996. "Terrorism and Foreign Direct Investment in Spain and Greece," Kyklos, Wiley Blackwell, vol. 49(3), pages 331-352, August.
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    Cited by:

    1. Omer Majeed & Günther G. Schulze, 2025. "FDI and the Geography of Terror," Discussion Paper Series 53 JEL Classification: F2, Department of International Economic Policy, University of Freiburg, revised Dec 2025.
    2. Edmund Ntom Udemba & Uju Violet Alola & Yizhi QIN, 2025. "Achieving sustainable economic development amidst conflicts: a study of the role of ease of doing business in development plan," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-16, December.

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