The economic benefits of justice

Abstract

Post-conflict states represent an important research agenda for scholars studying foreign direct investment (FDI). While leaders of post-conflict states have strong incentives for trying to attract international investments, multinational corporations (MNCs) may view these states as high-risk since the reoccurrence of violence in the aftermath of civil conflict is common. Consequently, leaders of post-conflict states desperate to receive FDI to help ignite their stalled economies must convince MNCs that their state is a stable and secure place to invest in. Drawing on the recent literature that identifies the importance of domestic and international institutions for securing FDI, this article argues that post-conflict justice (PCJ) institutions can help post-conflict states attract investment. The domestic and reputation costs associated with implementing PCJ allow states to send a costly and credible signal to international investors about the state’s willingness to pursue the successful reconstruction of the post-conflict zone. Under these conditions, uncertainty is lessened and foreign investors can feel more confident about making investments. Post-conflict states, therefore, that choose to implement PCJ are more likely to receive higher levels of FDI compared with post-conflict states that refrain from implementing these institutions. Statistical tests confirm the relationship between justice institutions and FDI from 1970–2001. Post-conflict states that implement restorative justice processes in the post-conflict period receive higher levels of FDI than those countries that do not implement a process.