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Aid in Modulating the Impact of Terrorism on FDI: No Positive Thresholds, No Policy

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  • Asongu, Simplice
  • Efobi, Uchenna
  • Beecroft, Ibukun

Abstract

We investigate how foreign aid dampens the effects of terrorism on FDI using interactive quantile regressions. The empirical evidence is based on 78 developing countries for the period 1984-2008. Bilateral and multilateral aid variables are used, while terrorism dynamics entail: domestic, unclear, transnational and total number of terrorist attacks. The main finding is that foreign aid cannot be used as a policy tool to effectively address a hypothetically negative effect of terrorism on FDI. The positive threshold we cannot establish is important for policy makers because it communicates a cut-off point at which foreign aid completely neutralizes the negative effect of terrorism on FDI. From the conditioning information set, we also establish for the most part that the effects of GDP growth, infrastructural development and trade openness are an increasing function of FDI. Policy implications are discussed.

Suggested Citation

  • Asongu, Simplice & Efobi, Uchenna & Beecroft, Ibukun, 2017. "Aid in Modulating the Impact of Terrorism on FDI: No Positive Thresholds, No Policy," MPRA Paper 85488, University Library of Munich, Germany, revised Sep 2017.
  • Handle: RePEc:pra:mprapa:85488
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    References listed on IDEAS

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    Keywords

    FDI; Foreign aid; Terrorism; Quantile regression;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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