Civil war termination and foreign direct investment, 1989–2012

Abstract

Data on global foreign direct investment (FDI) inflows shows that civil war significantly deters investment, while post-civil war settings attract investment. Civil wars, however, can end in different ways (government victories, rebel victories, and various types of settlements) and firms should be attracted to terminations that reveal more information about the future political and economic stability of the nation. We argue that comprehensive peace agreements and their subsequent implementation convey the most relevant information to investors regarding the credibility of the conflict actors’ commitment to future peace and stability and should thus attract the most FDI. Analysis of FDI inflows to 73 post-civil war countries lends support to our argument. The policy implications of the study are straightforward: governments that wish to attract the maximum amount of FDI for economic reconstruction following a civil war should negotiate and implement a comprehensive peace agreement.