Blessing or curse? Assessing the local impacts of foreign direct investment on conflict in Africa

Abstract

The question of foreign direct investment (FDI) and socio-political development is debated heavily. Liberals believe that FDI brings economic opportunities and/or increased incentives for peace and security among host societies. Critics suggest that FDI is exploitative, leading to conditions that increase the risk of violence. We take a political economy perspective that views FDI as problematic depending on how FDI affects politically powerful local interests. As such, all forms of FDI should meet domestic opposition, but only FDI in the extractive sector, where domestic political actors have little at stake, escalates to major war. Building on recent work which examines this question pertaining to extractive sector FDI, we introduce sub-national, geo-referenced data on FDI in all sectors for evaluating local conflict using combined data from four distinct geo-referenced conflict databases. Using site-period fixed effects with a difference-in-difference like approach, we find that FDI in all sectors increases local conflict. Conflicts induced by most FDI sectors fall short of becoming civil war, except for extractive sector FDI.