Dodging bullets: The heterogeneous effect of political violence on greenfield FDI

The relationship between political violence and greenfield foreign direct investment is contingent on the type of violence, the characteristics of the investment-receiving sector, and the international scope of the investing firm. Analysis using a dynamic fixed effects model for a panel of 90 develo...

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Bibliographic Details
Published inJournal of international business studies Vol. 48; no. 7; pp. 862 - 892
Main Authors Witte, Caroline T, Burger, Martijn J, Ianchovichina, Elena I, Pennings, Enrico
Format Journal Article
LanguageEnglish
Published London Palgrave Macmillan 01.09.2017
Palgrave Macmillan UK
Subjects
Assassinations & assassination attempts
Business and Management
Business Strategy/Leadership
Conflict
Developing countries
Extraction
Foreign investment
Intermittent
International Business
LDCs
Localization
Management
Multinational corporations
Organization
Political risk
Political violence
Profitability
Terrorism
Violence
economic geography
foreign direct investment (FDI)
political conflict
political violence
political risk
heterogeneity
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Summary:The relationship between political violence and greenfield foreign direct investment is contingent on the type of violence, the characteristics of the investment-receiving sector, and the international scope of the investing firm. Analysis using a dynamic fixed effects model for a panel of 90 developing countries shows that nationwide political conflict is negatively associated with total and nonresource-related greenfield FDI, but not with resource-related greenfield FDI. The insensitivity of resource FDI to political conflict is explained by the high profitability of natural-resource extraction and geographic constraints on location choice. In the nonresource sector, the least geographically diversified firms are most sensitive to conflict. Other types of political violence, including intermittent violence in the form of terrorist acts and assassinations, or persistent but low-impact events, such as political terror, have no effect on the location choice decisions of multinational enterprises. These findings inform the strategies of multinationals with a nuanced and much-needed understanding of the effects of political violence and the risks it poses to their businesses.
ISSN:0047-2506
1478-6990
DOI:10.1057/s41267-017-0079-7