International business research and risky investments, an analysis of FDI in conflict zones

Abstract

A B S T R A C TThe purpose of this paper is to examine the determinants of a firm's strategy to invest in a conflict location. To the best of our knowledge, this has not been done before. We examine this using a standard model of international business, overlaid with the fundamental approach to corporate social responsibility. We start with the population of multinationals who have chosen to invest in low income countries with weak institutions. We then split this sample in order to distinguish between firms that have invested in conflict regions compared to those that haven't. Our analysis then proceeds to explain the decision of those firms to invest in conflict locations by using a simple Probit model. We find that countries with weaker institutions and less concern about corporate social responsibility (CSR) are more likely to invest in conflict regions. Finally, firms with more concentrated ownership are more likely to invest in such locations.

The Fatal Attraction of Civil War Economies: Foreign Direct Investment and Political Violence, A Case Study of Colombia

“…And while studies have analyzed the motivations of firms to invest in highly volatile climates, extreme cases such as armed conflict are often overlooked (Driffield et al. :141). For example, in terms of understanding why firms invest in politically risky countries, “virtually all” of the research “addresses the issue in terms of corruption” and “very little has been done on analysing the types of firms who invest in systematically risky environments” (Driffield et al.…”

“…For example, in terms of understanding why firms invest in politically risky countries, “virtually all” of the research “addresses the issue in terms of corruption” and “very little has been done on analysing the types of firms who invest in systematically risky environments” (Driffield et al. :141).…”

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“…In this study, we focus on one of the most severe risks, which is the prevalence of violent conflicts and terrorism (Bader & Schuster, 2015;Czinkota, Knight, Liesch, & Steen, 2010;Driffield, Jones, & Crotty, 2013;Getz & Oetzel, 2010). The National Counterterrorism Center (2012) reports more than 10,000 attacks just in the year 2011, killing or injuring almost 45,000 people in 70 countries.…”

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“…Empirical studies on the measures of governance and inward FDI for the South and East Asia and Pacific region that have been identified in the search are: Gastanaga et al (1998), Globerman and Shapiro (2002a), Globerman and Shapiro (2002b), Hsiao and Shen (2003), Anghel (2004), Globerman and Shapiro (2004), Gani (2007), Hur et al (2007), Adeoye (2009), Brunetti andWeder (1998), Wernick et al (2009), Ali et al (2010, He et al (2011), Muhammad et al (2011), Jadhav (2012, Luca and Spatafora (2012), Habib and Zurawicki (2001), Wei (2000), Teksoz (2004), Voyer and Beamish (2004), Straub (2005), Dahlstrom and Johnson (2007), Khamfula (2007), Brouthers et al(2008), Cole et al(2009), Sadig (2009), Woo and Heo (2009),Qian et al(2012 and Mathur and Singh (2013), Nigh and Schollhammer (1987), Singh and Jun (1995), Busse and Hefeker (2005), Baek andQian (2011), Zheng (2011) and Driffield et al (2012), Seyoum (1996), Lee and Mansfield (1996), Ahn et al(1998), Li and Resnick (2003), Nunnenkamp and Spatz (2004), Ahlquist (2008),...…”