On Economics of Civil Violence and FDI in Sub-Saharan Africa
Abstract
There is a generally accepted view by critics of foreign direct investment (FDI) and activities of multinational corporations, particularly in natural resources sectors of developing countries, that such activities lead to violence. This paper aims to address the validity of this claim by focusing on Sub-Saharan Africa (SSA). We first construct a new general equilibrium theory of FDI and violence. Our theoretical results suggest that while FDI flow into skilled-labor intensive resource sector reduces the risk of violence, FDI inflow increases the risk of violence when it is channeled through unskilled-labor intensive resource sector. Then, we undertake an empirical analysis consisting of 34 SSA countries during 1972 to 2013. Our dynamic panel estimates suggest, consistently across numerous model specifications, that while FDI flows into skilled-labor intensive fuel resource sectors reduce the risk of violence, such flows are less effective in reducing violence when directed toward unskilled-labor intensive especially in non-fuel ore and mining
On Economics of Civil Violence and FDI in Sub-Saharan Africa
Room 204
There is a generally accepted view by critics of foreign direct investment (FDI) and activities of multinational corporations, particularly in natural resources sectors of developing countries, that such activities lead to violence. This paper aims to address the validity of this claim by focusing on Sub-Saharan Africa (SSA). We first construct a new general equilibrium theory of FDI and violence. Our theoretical results suggest that while FDI flow into skilled-labor intensive resource sector reduces the risk of violence, FDI inflow increases the risk of violence when it is channeled through unskilled-labor intensive resource sector. Then, we undertake an empirical analysis consisting of 34 SSA countries during 1972 to 2013. Our dynamic panel estimates suggest, consistently across numerous model specifications, that while FDI flows into skilled-labor intensive fuel resource sectors reduce the risk of violence, such flows are less effective in reducing violence when directed toward unskilled-labor intensive especially in non-fuel ore and mining