FDI, Aid, Terrorism: Conditional Threshold Evidence from Developing Countries

Abstract

We investigate how foreign aid dampens the effects of terrorism on FDI using interactive quantile regressions. The empirical evidence is based on 78 developing countries for the

Conditional Linkages Between Iron Ore Exports, Foreign Aid and Terrorism

“…The adoption of these terrorism indicators is consistent with recent literature on the relationship between terrorism and macroeconomic variables Asongu et al, 2015;Asongu & Kodila-Tedika, 2015a). This adoption is also in line with the engaged trade-terrorism literature because some studies have focused only on a few variables, particularly (i) transnational terrorism (De Sousa et al, 2009ab) on the one hand and (ii) on the other hand transnational and domestic terrorism (Piazza, 2011).…”

“…Accordingly, the effect of bilateral aid is consistently positive with an inverted U-shape and threshold effects of decreasing positive magnitude, whereas multilateral aid is overwhelmingly positive only in the 0.25 th quintiles. The relative effectiveness of bilateral aid which is consistent with Asongu et al (2015) and Asongu and Kodila-Tedika (2015) can be traceable to the political economy of development assistance. Accordingly, because the strings related to bilateral aid require less conflicting development interest, as opposed to multilateral aid which may be (i) clouded by conflicts of interest during 'consensus building' among donors and hence (ii) tailored towards varying donor objectives.…”

“…This study has improved existing knowledge in the evolving stream of literature by: (i) employing iron ore exports as the dependent variable; (ii) partially confirming the findings of Bandyopadhyay et al (2014) in terms the effects of terrorism, foreign aid and their related interactions on macroeconomic variables and (iii) validating the results of Efobi et al (2015) and Asongu et al (2015) only within the spectra of negative interactive impacts and positive effect of terrorism on external flows.…”

“…Second, in a bid to improve space of policy directions, we are in accordance with the strand of literature which has used development assistance as a policy indicator in reducing the potentially negative impacts of terrorism on FDI (Bandyopadhyay et al, 2014;Asongu et al, 2015). Hence, we steer clear of the engaged terrorism-trade literature 6 by employing a foreign aid policy indicator in the terrorism-'iron ore exports' linkage.…”

“…First and foremost, while Bandyopadhyay et al (2014) using Generalised Method of Moments (GMM) have focused on how development assistance could be relevant in mitigating the negative impact of terrorism on FDI. Their results have been extended by Efobi et al (2015) and Asongu et al (2015) who have respectively conditioned the baseline analysis on (i) domestic corruption-control levels using a more robust GMM strategy and (ii) initial levels of foreign direct investment using quintile regressions. Moreover, findings from the last-two studies have not been consistent with Bandyopadhyay et al (2014) on (i) an exclusive negative terrorism-FDI and (ii) a positive effect on FDI from the interaction between aid and terrorism.…”