Foreign Direct Investment, Aid and Terrorism: Empirical Insight Conditioned on Corruption Control

Abstract

This study checks the effect of foreign aid on terrorism and FDI, conditioned on domestic levels of corruption-control (CC). The empirical evidence is based on a sample of 78 countries for the period 1984-2008. The following findings are established: the negative effect of terrorism on FDI is apparent only in higher levels of CC; foreign aid dampens the negative effect of terrorism on FDI only in higher levels of CC; when foreign aid is subdivided into its bilateral and multilateral components, the result is mixed. While our findings are in accordance with the stance that bilateral aid is effective in reducing the adverse impact of transnational terrorism, the position that only multilateral aid is effective at mitigating the adverse impact of domestic terrorism on FDI is not confirmed because multilateral aid also curbs the adverse effect of transnational terrorism on FDI. Moreover, multilateral aid also decreases the adverse effect of unclear and total terrorisms on FDI. Policy implications are discussed.JEL Classification: D74; F21; F35

When is Foreign Aid Effective in Fighting Terrorism? Threshold Evidence

“…As to what concerns the negative GDP growth effect, economic prosperity provides an economic outlook that is conducive for employment and characterised with less ambiguity on the part of investors who often prefer investment strategies that are less ambiguous (Le Roux & Kelsey, 2015ab). Hence, opportunities associated with broad-based economic growth in terms of employment and reductions of inequality are likely to sway the youth from terrorist sentiments (Singh, 2001(Singh, , 2007Efobi et al, 2015). The following findings can be established in relation to The following findings can be established with regards to total aid and terrorism in …”

“…Previous studies on determinants like and Efobi et al (2015), have reported parameter estimates at the conditional mean of the dependent variable.…”

“…Consistent with the motivation of the study, we build on panel data from and Efobi et al (2015) (Asongu &Nwachukwu, 2015) and controlling for the effect of lifelong learning on non-violence and political stability (Asongu &Nwuchukwu, 2016). These include: GDPg, inflation, infrastructure, exchange rate, political globalisation, civil conflicts.…”

“…To the best of our knowledge, this underlying literature has revolved around: the impact of terrorism on innovation (Koh, 2007), the influence of natural resources (Humphreys, 2005) and the role of development assistance in reducing the negative impact of terrorism on macroeconomic variables Efobi et al, 2015;. This last stream on the use of foreign aid to fight terrorism is closest to the present line of inquiry.…”

Fighting terrorism in Africa: Benchmarking policy harmonization

“…The first focuses on nexuses between macroeconomic variables and terrorism while the second is concerned with the mechanisms by which terrorism can be fought. Some studies in the strand on linkages between terrorism and macroeconomic variables include: the effect of terrorism on foreign direct investment (FDI) (Abadie & Gardeazabal, 2008); linkages between terrorism, economic development and resource-wealth in conflict management (Humphreys, 2005;Meierrieks & Gries, 2013;Choi, 2015); the incidence of terrorism on innovation (Koh, 2007) and the relevance of foreign aid in the effect of terrorism on development outcomes (Bandyopadhyay et al, 2014;Efobi et al, 2015).…”