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This paper studies the effects of foreign direct investment (FDI) on domestic terrorism. Using a cross-national, time-series analysis of 114 countries from 1991–2017, and employing structural equation modeling to test a number of mediating factors, we find that the impact of FDI on domestic terrorism depends on the host state's level of economic development. For host countries at higher-income levels, FDI boosts economic development and global integration promoting prosperity, increasing counterterrorism resources, and reducing the economic grievances that foster terrorism. Conversely, for lower-income host countries, increased FDI fuels higher domestic terrorism, as it intensifies clashes between traditional and modern elements within society, raises economic discrimination, heightens perceptions of economic insecurity, and subsequently leads to grievances directed against the state. Our results indicate a curvilinear relationship between FDI inflows and domestic terrorism, suggesting that FDI produces a double-edged sword between promoting economic development and increasing domestic terrorism in host states. [ABSTRACT FROM AUTHOR]

Conflict research has recently found that increased inequality weakens institutional conditions, opening the door for terrorism. While this research often accounts for endogeneity, or the possibility of a reverse causal relationship, there has yet to be an empirical investigation of the impact of terrorism on income inequality. Using a sample of 139 countries between 1994 and 2018, we show that both domestic and transnational terrorism result in higher levels of income inequality. Our results are consistent for both pre- and post-tax and transfer inequality as well as multiple model specifications. Additionally, we explore multiple potential causal mechanisms that link terrorism and income inequality finding that the effect is, in part, due to terrorism's negative effects on institutional stability, increased military expenditure, possibly to fund counterterrorism operations, and reduced foreign capital, especially for greenfield investment. Our analysis indicates a positive relationship between terrorism and inequality and the mechanisms that produce the effect, contributing to the terrorism and inequality literatures. [ABSTRACT FROM AUTHOR]