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Does transnational terrorism reduce foreign direct investment? Business-related versus non-business-related terrorism

Author

Listed:
  • Matthew Powers

    (Department of Political Science, University of Illinois at Urbana-Champaign)

  • Seung-Whan Choi

    (Department of Political Science, University of Illinois at Chicago)

Abstract

Although several existing studies examine the economic impact of transnational terrorism by referring to its potential to reduce foreign direct investment (FDI), they overlook possible differences in the effects of business-related and non-business-related terrorism. We argue that the former type of terror negatively affects FDI since it damages multinationals’ buildings, destroys their products, kills their employees, and causes a rise in insurance premiums. The latter type of terror, however, does not induce the same ramifications and should thus have little or less influence on a country’s FDI. In order to examine the effects of these two different types of transnational terrorism, we employ three different statistical techniques using data gleaned from the International Terrorism: Attributes of Terrorist Events (ITERATE) dataset. A cross-sectional, time-series data analysis of 123 developing countries during the period from 1980 to 2008 reveals that transnational terrorism that harms multinational businesses contributes to a decrease of foreign investment but transnational terrorism that afflicts non-business-related targets is statistically irrelevant. This implies that when countries implement counterterrorism measures that are directly intended to mitigate the impact of business-related terrorist activities, they are likely to attract more foreign capital and should therefore realize a greater degree of economic development.

Suggested Citation

  • Matthew Powers & Seung-Whan Choi, 2012. "Does transnational terrorism reduce foreign direct investment? Business-related versus non-business-related terrorism," Journal of Peace Research, Peace Research Institute Oslo, vol. 49(3), pages 407-422, May.
  • Handle: RePEc:sae:joupea:v:49:y:2012:i:3:p:407-422
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    Cited by:

    1. repec:pal:jintbs:v:48:y:2017:i:7:d:10.1057_s41267-017-0079-7 is not listed on IDEAS
    2. Mazhar Yasin MUGHAL & Amar Iqbal ANWAR, 2013. "Foreign Financial Flows and Terrorism In Developing Countries," Working Papers 2013-2014_1, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Sep 2013.
    3. Simplice Asongu & Jacinta Nwachukwu, 2018. "Fighting Terrorism: Empirics on Policy Harmonisation," German Economic Review, Verein für Socialpolitik, vol. 19(3), pages 237-259, August.
    4. Caroline T Witte & Martijn J Burger & Elena I Ianchovichina & Enrico Pennings, 2017. "Dodging bullets: The heterogeneous effect of political violence on greenfield FDI," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(7), pages 862-892, September.
    5. Alice Y. Ouyang & Ramkishen S. Rajan, 2017. "Impact of Terrorism on Cross-Border Mergers and Acquisitions (M&As): Prevalence, Frequency and Intensity," Open Economies Review, Springer, vol. 28(1), pages 79-106, February.
    6. repec:gam:jecomi:v:7:y:2019:i:2:p:38-:d:228678 is not listed on IDEAS
    7. repec:gam:jsusta:v:10:y:2018:i:12:p:4553-:d:187252 is not listed on IDEAS

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