Intrastate Armed Conflict Termination and Foreign Direct Investment

Abstract

AbstractDoes intrastate conflict termination increase foreign direct investment (FDI)? Why do some countries receive rapid FDI inflows after an internal armed conflict ends, while others do not? As a key explanation, we focus on the different types of conflict termination that send different signals to foreign investors. We argue that post-conflict countries receive more FDI when an intrastate conflict ends in a decisive manner because decisive termination lowers the risk of conflict resumption that creates precarious investment climates. Using the UCDP armed conflict termination data from 1970 to 2009, we empirically find that countries emerging from an intrastate conflict that ends in one side's victory, in particular government victory, and that ends in a peace agreement with major power involvement attract more FDI over the course of post-conflict years.