Intimidated Investors? FDI’s Reaction to Terror

• In Event: Analyzing the Anti-Globalization Backlash: the Role of FDI

Abstract

The negative effect of terrorism on foreign investment identified in current scholarship masks heterogeneity across host markets and industries. Foreign investment ought to react less to terror when host markets perfectly match firms' needs; when firms lack viable alternative host markets; and when key assets cannot be relocated. We model the endogenous co-determination of terror and investment to derive these comparative statics, and develop an instrumental variable estimator which exploits differences in the networks along which terror and investment spread. Using industry-level data on the activities of US multinationals, we test our model and conclude with implications for the strategic interaction of investors and terror groups.

Authors

• Iain Osgood, University of Michigan, Ann Arbor

• Corina Simonelli, University of Michigan, Ann Arbor