Foreign Direct Investment, Aid and Terrorism: An Analysis of Developing Countries

Recent aid flows often have a counterterrorism component.

“A substantial focus of recent aid flows is related to counterterrorism efforts (see, e.g., Fleck and Kilby, 2010).”

• cites Fleck and Kilby, 2010 sourcePartly supported

  The Introduction and Section III report a substantial increase in U.S. bilateral aid during the War on Terror, including funds for Iraq, Afghanistan, and important allies. This supports a counterterrorism-related component of recent U.S. aid, but the paper does not establish that counterterrorism was a substantial focus of recent aid flows generally or measure how much aid directly funded counterterrorism efforts. (LLM, conf=0.82)

  Experimental — accuracy not yet measured

Foreign aid lessens how much total and domestic terrorism hurt FDI in developing countries.

“aid mitigates the negative effects of total and domestic terrorism on FDI”

• Also stated in: § 1. Introduction · plain

  “Notably, aid has a mitigating influence on this reduction; on average, aid reduces this loss from 34.83 to 6.28 million US dollars.”

Transnational terrorism causes monetary FDI losses of 88.09 million and 124.71 million US dollars.

“In monetary terms, this results in a loss of FDI of 88.09 and 124.71 million US dollars, respectively.”

For the sample average FDI level of 1,682.48 million US dollars, one additional total terrorism incident per 100,000 people reduces net FDI by 34.83 million US dollars for the average country.

“To illustrate its harmful effect, we calculate this loss in terms of its monetary value for an average level of FDI in our sample, which stands at 1682.48 million US dollars.This loss amounts to a fall in net FDI position of 34.83 million US dollars for the average country.”

Political globalization has a significant positive effect on FDI.

“The significant positive effect of political globalization suggests that foreign investors prefer a venue country that is more integrated with the world.”

A one-unit rise in total terrorism incidents per 100,000 people reduces FDI by 1.581 to 2.070 percent of GDP, depending on the model specification.

“In all regression specifications, an increase of one incident of total terrorism per 100000 persons depresses FDI from 1.581 (for the fully specified model) to 2.070 (for the baseline model) percent of GDP.”

At the sample average aid level of 6.427% of GDP, the partial effect of total terrorism on FDI changes from -2.070 to -0.373.

“This shows that the negative independent effect of higher terrorism incidents per 100000 persons on FDI goes from -2.070 to -0.373 when net aid flows to a country make up 6.427% of its GDP.”

Transnational terrorism negatively affects FDI.

“The regression results in Table 5 show that, like domestic terrorism, transnational terrorism also negatively affects FDI.”

At average aid, the partial effect of domestic terrorism on FDI ranges from -0.281 to -0.440.

“however, its partial effect on FDI, calculated for an average level of aid, ranges from -0.281 to -0.440, respectively.”

Foreign aid does not lessen the harm that transnational terrorism does to FDI.

“however, this is not the case for transnational terrorism”

• Also stated in: § 1. Introduction · plain

  “aid does not have this same mitigating impact on transnational terrorism”

Adding log adult literacy, log exchange rate, and investment profile leaves the primary variable findings robust.

“The results in column (3) of Table 3 show that the findings of our primary variables remain robust to the inclusion of these variables.”

In the baseline model, one additional total terrorism incident per 100,000 people lowers FDI/GDP by 2.07 percentage points.

“An increase of one incident of total terrorism per 100000 persons induces a reduction of 2.07% in the share of FDI in GDP.”

In the baseline model, aid lowers the adverse effect of terrorism on FDI from 34.82 million US dollars to 6.28 million US dollars.

“For the baseline model, this implies that aid reduces this adverse effect down from 34.82 million US dollars (without the aid-mitigating influence) to 6.28 million US dollars (with the aid-mitigating impact).”

A transnational terrorism incident has an adverse FDI effect 2.49 to 3.12 times larger than a domestic terrorism incident.

“This suggests that a transnational terrorism incident induces a detrimental effect on FDI that is 2.49 to 3.12 times higher than that of a domestic terrorism incident.”

• Also stated in: § 5. Concluding remarks · plain

  “The negative impact of transnational terrorism on FDI/GDP is 2.5 to 3 times as large as that of domestic terrorism.”

One additional domestic terrorism incident per 100,000 people lowers FDI by between 2.106 and 2.362 percent of GDP, depending on specification.

“To put the estimated effect of domestic terrorism on FDI in perspective, an increase of one incident of domestic terrorism per 100000 persons depresses FDI from -2.106 (for the fully specified model) to -2.362 (for the baseline model) percent of GDP”

The signs and significance of the variables of interest remain unchanged when all other potential determinants of FDI are included together.

“The signs and significance of our variables of interest remain unaltered with the simultaneous inclusion of all other potential determinants of FDI.”

Using counts of terrorist incidents rather than incidents per 100,000 people generally supports the central findings.

“We also used the numbers of terrorist incidents in a country, instead of the numbers of terrorist incidents per 100000 persons, for total, domestic and transnational terrorism events.To conserve space, we do not report these results, which generally support our central findings.”

In column (2), one additional total terrorism incident per 100,000 people lowers FDI/GDP by 1.49 percentage points on average.

“This suggests that an increase of one incident of total terrorism per 100000 persons depresses FDI's share of GDP by 1.49% on average in a sample country.”

The monetary equivalent of that reduction is a loss of 26.60 to 34.83 million US dollars in FDI.

“In monetary terms, this is a loss of 26.60 and 34.83 million US dollars in FDI, respectively.”

In column (2), aid mitigates terrorism's adverse effect on FDI, with the estimated effect falling from -1.490 to -0.365 for a country receiving average aid.

“The coefficient of the interaction term reveals that aid mitigates the adverse effect of terrorism in developing countries.This can be inferred from the estimated effect of terrorism on FDI/GDP, which decreases from -1.490 to -0.365 for a sample country that receives an average amount of aid.”

One additional transnational terrorism incident per 100,000 people lowers FDI by between 5.236 and 7.412 percent of GDP, depending on specification.

“An increase of one incident of transnational terrorism per 100000 persons decreases FDI from -5.236 (for the fully specified model) to -7.412 (for the baseline model) percent of GDP.”

Attacks classified as transnational are estimated to damage FDI roughly 2.5 to 3 times as much as domestic attacks.

“We find that transnational terrorist incidents have 2.5 to 3 times the harmful impact on FDI than domestic terrorist incidents.”

The main variables of interest retain qualitatively similar results whether or not literacy is included.

“The results of our main variables of interest remain qualitatively the same with or without the inclusion of literacy.”

Internal civil conflicts have a statistically insignificant effect on FDI.

“By contrast, the effect of internal civil conflicts is statistically insignificant.”

In the fully specified model, aid lowers the adverse effect of terrorism on FDI from 26.60 million US dollars to 4.98 million US dollars.

“While, for the fully specified model, this adverse effect goes down from 26.60 million US dollars (without the aid-mitigating influence) to 4.98 million US dollars (with the aidmitigating impact).”

Aid reduces the monetary FDI loss from total terrorism from 34.83 million to 6.28 million US dollars.

“In terms of its monetary effect, this reduces the loss in FDI from 34.83 to 6.28 million U.S. dollars.”

In the regressions, the number of instruments is much smaller than both the number of observations and the number of countries.

“This is not a problem here because the numbers of instruments in our regressions are far less than not only the numbers of observations, but also the numbers of countries.”

Foreign investors prefer a host country that is more integrated with the world.

“The significant positive effect of political globalization suggests that foreign investors prefer a venue country that is more integrated with the world.”

Donor countries may gain an extra benefit from giving aid to countries plagued by domestic terrorism because such aid reduces terrorism's negative FDI consequences.

“Our study shows that donor countries may receive an extra dividend from aid to domestic-terrorismplagued countries as aid ameliorates the negative FDI consequences of terrorism.”

Developing countries are especially vulnerable to the economic consequences of terrorism.

“developing countries are particularly prone to the economic ramifications of terrorism”

• cites Enders and Sandler (2008)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The results are robust to different specifications.

“we demonstrate that our results are robust to different specifications”

In many developing countries, domestic attacks account for most terrorism.

“domestic terrorism is an overwhelming fraction of the total terrorism for many developing nations”

Terrorism constitutes a significant danger to foreign direct investment inflows.

“First, terrorism poses a substantial threat to the inflow of FDI.”

In the theoretical model, terrorism lowers the volume of FDI.

“Thus, terrorism reduces the volume of FDI, k .”

Because foreign people and property are directly attacked, transnational terrorism is expected to affect FDI more at the margin than domestic terrorism.

“There are, however, grounds for anticipating a greater marginal impact of transnational terrorism on FDI since foreign personnel and assets are directly targeted.”

The findings remain qualitatively and quantitatively similar across the models.

“Nevertheless, the findings remain qualitatively and quantitatively quite similar.”

Aid reduces FDI in developing countries because its negative effects on FDI are larger than its positive effects.

“This is also true of foreign aid, presumably because of the dominance of crowding out and rent-seeking activity.”

Aid does not mitigate the negative effect of transnational terrorism on FDI.

“This suggests that aid fails to mitigate the negative effect of transnational terrorism on FDI.”

The failure of aid to reduce transnational terrorism's FDI effect is probably because aid-recipient countries cannot address a transnational terrorist problem that originates abroad.

“This result is probably due to the inability of aid-recipient countries to address its transnational terrorist problem, which comes from abroad.”

• AssumptionRests on an assumption: Developing countries have limited capacity to act proactively against terrorists who use foreign bases for cross-border attacks.

Domestic and transnational terrorism respond differently to foreign aid.

“Thus, the two forms of terrorism respond quite differently to foreign aid.”

Foreign investors prefer to locate operations where governments grant more political freedom and civil liberties.

“The relatively larger magnitude of the democratic accountability coefficient implies that foreign investors prefer locating operations where governments grant more political freedom and civil liberties to citizens.”

In the theoretical model, under certain conditions, more tied aid reduces the marginal damaging effect of terrorism on FDI.

“Under certain conditions the inequality will be satisfied, suggesting that a greater emphasis on tied aid will alleviate, at the margin, the damaging effect of terrorism on FDI.”

The column (7) results confirm that foreign investors locate where governments value political freedom and civil liberties.

“The results in column (7) further confirm that foreign investors locate where governments value political freedom and civil liberties.”

More terrorism risk tends to lower net FDI inflows into a country.

“Abadie and Gardeazabal (2008) conclude that a higher risk of terrorism depresses net FDI to a country.”

• cites Abadie and Gardeazabal (2008)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

A country facing a severe, prolonged terrorist campaign may lose substantial GDP, FDI, and GDP growth.

“countries plagued with an intense long-term terrorist campaign can suffer significant losses in GDP, FDI, and GDP growth (Abadie and Gardeazabal, 2003)”

• cites Abadie and Gardeazabal, 2003 sourceNot checked — no full text of the source

Aid is unable to tackle the root causes or supply networks behind transnational terrorism.

“Foreign aid apparently cannot address the causes and supply lines of transnational terrorism.”

Aid likely fails to reduce transnational terrorism's effect on FDI because recipient governments cannot counter a threat whose base is often outside their borders.

“This is probably due to aid-recipient countries not being able to address a transnational terrorist threat that is often based abroad.”

• AssumptionRests on an assumption: Few developing countries can project military or coercive power outside their own territory.

In the theoretical model, an increase in terrorism reduces FDI.

“Eq. ( 12) indicates that increased terrorism reduces FDI”

A fixed-effects model is used to account for time-invariant geographic, strategic, and other factors affecting FDI.

“applying a fixed-effects econometric model that controls for the geographic, strategic, or other time-invariant FDI influences”

Including all variables together does not create a statistical problem because their correlations are not high.

“Their simultaneous inclusion does not pose any statistical problem because correlations between these variables are not high.”

Foreign aid reduces the negative impact of terrorism on FDI in developing countries.

“Second, aid mitigates the adverse effect of terrorism on FDI in developing countries.”

In the theoretical model, an increase in counterterrorism aid raises FDI.

“Eq. ( 13) shows that increased counterterrorism aid raises FDI.”

Higher terrorism is expected to reduce FDI.

“higher terrorism is anticipated to reduce FDI (Enders et al., 2006)”

• cites Enders et al., 2006Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.