Security

Foreign Direct Investment, Aid, And Terrorism: An Analysis Of Developing Countries

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Executive Summary

Using a dynamic panel data framework, the authors investigate the relationship between the two major forms of terrorism and Foreign Direct Investment (FDI). They then analyze how these relationships are affected by foreign aid flows. The analysis focuses on 78 developing countries for 1984-2008. Their findings suggest that all types of terrorism depress FDI. In addition, aid mitigates the negative effects of total and domestic terrorism on FDI; however, this is not the case for transnational terrorism. This finding highlights those different forms of terrorism call for tailoring mitigating strategies. Foreign aid apparently cannot address the causes and supply lines of transnational terrorism.

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