Is violence bad for business? The consequences of political violence for foreign direct investment

Jamison, Anne Spencer

doi:10.5465/ambpp.2021.15854abstract

Cited by 2 publications

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“…Our study expands the dynamic capabilities view by proposing a dynamic capability profile for firms investing in conflict zones following Laaksonen and Peltoniemi (2018) recommendation, who explain that to build dynamic capabilities’ profiles, one must examine it using various measures of dynamic capabilities. Our findings are in line with Jamison’s (2021) recent findings who argued that conflict is not necessarily a deterrent to FDI if the market structure is taken into consideration. She argues that the demand for some monopolies (utilities, telecommunications and logistics) in these markets is inelastic and therefore is not likely to be impacted by the presence of conflict.…”

Section: Discussionsupporting

confidence: 93%

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Dynamic capabilities and FDI in conflict zones: the role of diversification and stock management capabilities

Abdelzaher

Ramadan

2022

RIBS

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Purpose Despite the increased level of national conflict around the world, outward foreign direct investment (FDI) targeting these areas has increased. This study aims to adopt a dynamic capability lens to examine the relationship between firm capabilities and the level of conflict in their FDI portfolio. The paper argues that conflict zones may be an attractive destination for a subset of firms, given their capability profile. Design/methodology/approach The authors draw from a sample of US Fortune 500 firms (2019) to examine their FDI destinations; specifically, they collected data on the locations of their foreign subsidiaries, which resulted into a final sample of 118 diversified US firms. The model was analyzed using ordinary least squares multiple regression to predict the extent to which their FDI portfolios have ongoing domestic and international conflict and the impact of expansion in such conflict-stricken markets on firm financial performance (ROA). Findings The authors find that firms with greater international geographical diversification capabilities, as depicted by their geographic spread, and those with greater local stock management capability, as depicted by their initial public offering maturity, are more likely to launch subsidiaries in high ongoing conflict zones. Furthermore, the authors find that while it may be unprofitable for firms to seek FDI in high-conflict zones, firms that operate in strategic industries (manufacturing, infrastructure, natural resource extraction) experienced positive performance. This can be attributed to the fact that firms operating in these sectors are more likely to directly profit in the reconstruction/rebuilding of such conflict-stricken markets. Originality/value While previous literature focused on macro-level factors, this study sought to highlight firm-level factors that determine FDI decision in conflict zones. The authors capture different dimensions/sources of firms’ dynamic capability, one resulting from foreign experience (i.e. geographic diversification) and the other from local experience (i.e. domestic stock management) to assess how each correlate with multinational corporations’ level of conflict in their FDI portfolio. Furthermore, the authors contribute to the understanding of the relationship between expansion in conflict zones and firm performance and highlight that industry does matter. Implications from this study highlight the importance of building risk management capabilities to handle not just expansion in conflict zones but also during challenging times like those brought about by pandemics.

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Section: Discussionsupporting

confidence: 93%

“…She argues that the demand for some monopolies (utilities, telecommunications and logistics) in these markets is inelastic and therefore is not likely to be impacted by the presence of conflict. On the contrary, it is likely to create opportunities for some FDI (Jamison, 2021).…”

Section: Discussionmentioning

confidence: 99%

Dynamic capabilities and FDI in conflict zones: the role of diversification and stock management capabilities

Abdelzaher

Ramadan

2022

RIBS

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International Peacekeeping Encourages Foreign Direct Investment: Subnational Evidence From Liberia’s Extractive Sector

Hunnicutt

2023

Journal of Conflict Resolution

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Attracting foreign direct investment (FDI) to post-conflict countries is difficult. After conflict ends, governments struggle to perfectly enforce the institutions which otherwise shield investors from political instability. Reflecting this governance problem, this article presents a new explanation linking United Nations (UN) peacekeeping operations to subnational allocations of FDI in post-conflict countries. I specifically argue that deployments of UN peacekeeping police credibly signal to foreign firms where future political instability is least likely to disrupt their operations. Data from Liberia’s extractive sector support my argument. Increasing the local deployment of UN police encourages foreign firms to establish new natural resource concessions, particularly in areas where the government’s capacity to uphold the rule of law is weak.

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Is violence bad for business? The consequences of political violence for foreign direct investment

Cited by 2 publications

References 0 publications

Dynamic capabilities and FDI in conflict zones: the role of diversification and stock management capabilities

Dynamic capabilities and FDI in conflict zones: the role of diversification and stock management capabilities

International Peacekeeping Encourages Foreign Direct Investment: Subnational Evidence From Liberia’s Extractive Sector

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