Whose greed, whose grievance, and whose opportunity? Effects of foreign direct investments on internal conflict.

The literature on the economic causes of civil conflict has so far ignored the role of foreign direct investment (FDI). This paper begins to fill this gap. A closer look at the effects of FDI on the processes of political violence is justified by the foreign investors' potential for a two-fold impact: economic and political. On the one hand, investors wield the power to transform the economies of developing countries, thus changing economic inequalities and creating opportunities for grievance and for greed among domestic groups. On the other hand, investors themselves are strategic players with the goal to maximize profits and the ability to alter their environment through political channels. Still, only investors in some economic sectors have both the incentives and the ability to exercise political power in their host states. This paper investigates how the strategic interaction between foreign investors and host country actors influences the probability of civil conflict. It identifies the types of FDI that are likely to alleviate the risk of civil conflict (service sector FDI), as well as those investments that exacerbate it (primary and, sometimes, manufacturing FDI). Analyses using a new data set of industry-level FDI stock and flows lend some empirical support to the argument. [ABSTRACT FROM AUTHOR]