How do conciliatory and coercive counterinsurgency tactics affect militant group violence against civilians? Scholars of civil war increasingly seek to understand intentional civilian targeting, often referred to as terrorism. Extant research emphasizes group weakness, or general state attributes such as regime type. We focus on terrorism as violent communication and as a response to government actions. State tactics toward groups, carrots and sticks, should be important for explaining insurgent terror. We test the argument using new data on terrorism by insurgent groups, with many time-varying variables, covering 1998 through 2012. Results suggest government coercion against a group is associated with subsequent terrorism by that group. However, this is only the case for larger insurgent groups, which raises questions about the notion of terrorism as a weapon of the weak. Carrots are often negatively related to group terrorism. Other factors associated with insurgent terrorism include holding territory, ethnic motivation, and social service provision.

Under what circumstances does terrorism repel foreign investment? The negative effect of terrorism on foreign investment identified in current scholarship masks heterogeneity across host markets and industries. Foreign investment ought to react less to political violence when host markets match firms’ input requirements, when firms lack viable alternative hosts, and when assets are immobile across markets. We model the endogenous codetermination of terror and investment to derive these comparative statics, highlighting empirical challenges in identifying the effects of terror on foreign direct investment. To overcome these obstacles, we use an instrumental variable estimator which exploits differences in the networks along which terror and investment spread. Using industry-level data on the activities of US multinationals, we test our model and conclude that foreign investors that find it hard to leave particular host markets are doubly penalized: their lack of outside options makes them tempting targets for terror. Our findings have implications for other forms of violent and nonviolent political tactics which affect multinationals and for understanding how foreign investment reacts to heightened risk in host markets.

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