Aid in Modulating the Impact of Terrorism on FDI: No Positive Thresholds, No Policy

Asongu, Simplice and Efobi, Uchenna and Beecroft, Ibukun (2017): Aid in Modulating the Impact of Terrorism on FDI: No Positive Thresholds, No Policy. Forthcoming in: Forum for Social Economics

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 period 1984-2008. Bilateral and multilateral aid variables are used, while terrorism dynamics entail: domestic, unclear, transnational and total number of terrorist attacks. The main finding is that foreign aid cannot be used as a policy tool to effectively address a hypothetically negative effect of terrorism on FDI. The positive threshold we cannot establish is important for policy makers because it communicates a cut-off point at which foreign aid completely neutralizes the negative effect of terrorism on FDI. From the conditioning information set, we also establish for the most part that the effects of GDP growth, infrastructural development and trade openness are an increasing function of FDI. Policy implications are discussed.

• Item Type: MPRA Paper
• Language: English
• Keywords: FDI; Foreign aid; Terrorism; Quantile regression
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; F - International Economics > F3 - International Finance > F35 - Foreign Aid; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Abadie, A., & Gardeazabal, J., (2008). “Terrorism and the world economy”, European Economic Review, 52(1), pp.1-27.

Akinwale, A. K., (2010). “Integrating the traditional and the modern conflict management strategies in Nigeria”, Department of Sociology, Faculty of Social Sciences, University of Ibadan, Nigeria.

Akpan, U. S., Isihak, S. R., & Asongu, S. A., (2014). “Determinants of Foreign Direct Investment in Fast-Growing Economies: A Study of BRICS and MINT”, African Governance and Development Institute Working Paper No. 14/002, Yaoundé.

Asiedu, E., (2006), “Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Stability”. World Economy, 29(1), pp. 63-72.

Asiedu, E. (2014). “Does Foreign Aid in Education Promote Economic Growth? Evidence From Sub-Saharan Africa”, Journal of African Development, 16(1), pp. 37-59.

Asiedu, E., & Lien, D., (2011). “Democracy, Foreign Direct Investment and Natural Resources”, Journal of International Economics, 84, pp. 99-111.

Asiedu, E., & Nandwa, B., (2007). “On the Impact of Foreign Aid in Education on Growth: How relevant is heterogeneity of aid flows and heterogeneity of aid recipients?”, Review of World Economics, 143(4), pp. 631-649.

Asongu, S. A., & Biekpe, N., (2018). “Globalization and terror in Africa”, International Economics, DOI: 10.1016/j.inteco.2017.12.005.

Asongu, S. A., & Kodila-Tedika, O., (2017). "Trade, aid and terror", International Journal of Development Issues, 16(1), pp. 2-24.

Asongu, S. A., & Nwachukwu, J. C., (2016). “Conditional linkages between iron ore exports, foreign aid and terrorism”, Mineral Economics, 29(2-3), pp. 57–70.

Asongu, S. A., & Nwachukwu, J. C., (2017a). “Fuel exports, aid and terrorism”, Multinational Business Review, 25(3), pp. 239-267.

Asongu, S. A., & Nwachukwu, J. C., (2017b). “The Impact of Terrorism on Governance in African Countries”, World Development, 99(November), pp. 253-270.

Asongu, S. A., & Nwachukwu, J. C., (2018). “Fighting terrorism: empirics on policy harmonization”, German Economic Review. DOI: 10.1111/geer.12126.

Asongu, S. A., Tchamyou, V. S., Asongu, N., & Tchamyou, N. P., (2017). “The Comparative African Economics of Inclusive Development and Military Expenditure in Fighting Terrorism”. Journal of African Development, 19(2), pp. 77-91.

Asongu, S. A., Tchamyou, V. S., Jules R. Minkoua N., Asongu, N., & Tchamyou, N. P., (2018a). “Fighting terrorism in Africa: Benchmarking policy harmonization”, Physica A: Statistical Mechanics and its Applications, 492(February), pp. 1931-1957.

Asongu, S. A., Tchamyou, V. S., Asongu, N., & Tchamyou, N. P., (2018b). “Fighting terrorism in Africa: evidence from bundling and unbundling institutions”, Empirical Economics. DOI :10.1007/s00181-017-1378-3.

Bandyopadhyay, S., Sandler, T., &Younas, J., (2014). “Foreign direct investment, aid, and terrorism”, Oxford Economic Papers, 66(1), pp. 25-50.

Bandyopadhyay, S., & Younas, J., (2014), “Terrorism: A Threat to Foreign Direct Investment”, Doing Business AbroadPolicy Report https://www.stlouisfed.org/~/media/Files/PDFs/publications/pub_assets/pdf/re/2014/d/terrorism.pdf (Accessed: 29/04/2015).

Barrell, R. & Pain, N., (1999). “Trade restraints and Japanese direct investment flows”. European Economic Review, 43(1), pp. 29-45.

Beets, S. D., (2005). “Understanding the Demand-Side Issues of International Corruption.” Journal of Business Ethics, 57(1), pp. 65-81.

Billger, S. M., & Goel, R. K., (2009), “Do existing corruption levels matter in controlling corruption? Cross-country quantile regression estimates”, Journal of Development Economics, 90(2), pp. 299-305.

Biscaye, P., Harris, K. P., Reynolds, T., & Anderson, C. L., (2015). “Relative Effectiveness of Bilateral and Multilateral Aid on Development and Social Outcomes”, Evans School of Policy Analysis and Research (EPAR) Brief No. 294, Seattle, Washington.

Black, D., (1990). The elementary forms of conflict management. New York, Plenum Press.

Boly, A., Coniglio, N., Prota, F., & Seric, A., (2015), “Which Domestic Firms Benefit from FDI? Evidence from Selected African Countries”, Development Policy Review, 33(5), pp. 615-636.

Borg, M. J., (1992). “Conflict management in the modern world-system”. Sociological Forum, 7(2), pp. 261-282.

Brambor, T., Clark, W. M., & Golder, M., (2006), “Understanding Interaction Models: Improving Empirical Analyses”, Political Analysis, 14 (1), pp. 63-82.

Brockhoff, S., Kieger, T., & Meierrieks, D., (2015). “Great Expectations and Hard Times - The (Nontrivial) Impact of Education on Domestic Terrorism”, Journal of Conflict Resolution, 59(7), pp. 1186-1215.

Campos, N. F., & M Gassebner, M., (2013).”International terrorism, domestic political instability, and the escalation effect”, Economics & Politics, 25(1), pp. 27–47.

Caulderwood, K., (2015) “Sub-Saharan Africa Falls Behind In Fight Against Extreme Poverty: World Bank Report”, International Business Times (April 14th 2015). http://www.ibtimes.com/sub-saharan-africa-falls-behind-fight-against-extreme-poverty-world-bank-report-1881460 (Accessed: 19/04/2015).

Choi, S-W., (2015). “Economic growth and terrorism: domestic, international, and suicide”, Oxford Economic Papers, 67(1), pp. 157-181.

Choi, S-W., (2010). “Fighting Terrorism through the Rule of Law?”, The Journal of Conflict Resolution, 54(6), pp. 940-966.

Costa, A., Hermandez, M., & Sebastian-Gallés, N., (2008). “Bilingualism aids conflict resolution: Evidence from the ANT task”, Cognition, 106 (1), pp. 59-86.

De Grauwe, P., Houssa, R., & Picillo, G., (2012). “African trade dynamics: is China a different trading partner? ”, Journal of Chinese Economic and Business Studies, 10(1), pp. 15-45.

Efobi, U., Asongu, S., & Beecroft, I., (2015). “Foreign Direct Investment, Aid and Terrorism: Empirical Insight Conditioned on Corruption Control”, African Governance and Development Institute Working Paper No. 15/007, Yaoundé.

Efobi, U., & Nnadi, M., (2015). “How Does Foreign Aid Affect the Relationship between IFRS Adoption and Foreign Direct Investment?” African Governance and Development Institute Working Paper No. 15/014, Yaoundé.

Eubank, N., (2012), “Taxation, Political Accountability and Foreign Aid: Lessons from Somaliland”, Journal of Development Studies, 48(4), pp. 465-480.

Feridun, M., & Shahbaz, M., (2010). “Fighting Terrorism: Are Military Measures Effective? Empirical Evidence from Turkey”, Defence & Peace Economics, 21(2), pp. 193-205.

Gaibulloev, K., & Sandler, T., (2009). “The impact of terrorism and conflicts on growth in Asia”, Economics and Politics, 21(3), pp. 359-383.

Gardner, K. L., (2007). “Fighting Terrorism the FATF Way”. Global Governance: A Review of Multilateralism and International Organisation, 13(3), pp. 325-345.

GTI (2014). “Global Terrorism Index: Measuring and Understanding the Impact of Terrorism”, Institute for Economics and Peace, pp. 2-90. http://www.visionofhumanity.org/sites/default/files/Global%20Terrorism%20Index%20Report%202014_0.pdf (Accessed: 28/04/2015).

Heyneman, S. P., (2002). “Defining the Influence of Education on Social Cohesion”, International Journal of Educational Policy, Research and Practice, 3(4), pp. 73-97.

Heyneman, S. P., (2008a). “Education, social cohesion and ideology. In Right to Education: Policies and Perspectives,edited by Emin Karip, 89-104. Ankara: Turkish Education Association.

Heyneman, S. P., (2008b). “Buying your way into Heaven: The corruption of education systems in global perspective.”, Perspectives on Global Issues, 2 (1), pp. 1-8.

Hoffman, A. M., Shelton, C., & Cleven, E., (2013). “Press Freedom, Publicity, and the Cross-National Incidence of Transnational Terrorism”, Political Research Quarterly, 66 (4), pp. 896-909.

Humphreys, M., (2005). “Natural Resources, Conflict, and Conflict Resolution. Uncovering the Mechanisms”, Journal of Conflict Resolution, 49 (4), pp. 508-537.

International Country Risk Guide. (2010) The political risk services group, available at http://www.prsgroup.com/icrg.aspx (Accessed 10 October 2010).

Johnson A., & Quartey P (2009), “Foreign Aid and Human Development Indicators in sub-Saharan Africa”, Journal of Developing Societies, 25(1), pp. 57-83.

Koenker, R., & Hallock, F.K., (2001), “Quantile regression”, Journal of Economic Perspectives, 15(4), pp.143-156.

Koh, W. T. H., (2007). “Terrorism and its impact on economic growth and technological innovation”, Technological Forecasting and Social Change, 74(2), pp. 129-138.

Lee, C., (2017), “Terrorism, Counterterrorism Aid, and Foreign Direct Investment”. Foreign Policy Analysis, 13(1), pp. 168-187.

Le Roux, S., & Kelsey, D., (2016). “Strategic Ambiguity and Decision-making An Experimental Study”, Department of Economics, Oxford Brookes University.

Meierrieks, D., & Gries, T., (2013). “Causality between terrorism and economic growth”, Journal of Peace Research, 50(1), pp. 91-104.

Mlachila, M., Tapsoba, R., & Tapsoba, S. J. A., (2014). “A Quality of Growth Index for Developing Countries: A Proposal”, IMF Working Paper No. 14/172.

Obi, C. I., (2008). “Enter the Dragon? Chinese Oil Companies & Resistance in the Niger Delta”, Review of African Political Economy, 35(117), pp. 417-434.

Öcal, N., & Yildirim, J., (2010). “Regional effects of terrorism on economic growth in Turkey: A geographically weighted regression approach”, Journal of Peace Research, 47(4), pp. 477-489.

Okada, K., & Samreth, S.,(2012), “The effect of foreign aid on corruption: A quantile regression approach”, Economic Letters, 115(2), pp. 240-243.

Oreopoulos, P., & Salvanes, K. G., (2009). “How Large are Returns to Schooling? Hint: Money Isn’t Everything.”, NBER Working Paper No. 15339, Massachusetts.

Singh, P., (2001). “Punjab Terrorism: Truth Still Uncovered”, Economic and Political Weekly, 36 (40), pp. 3829-3831.

Singh, P., (2007). “The Political Economy of the Cycles of Violence and Non-violence in the Sikh Struggle for Identity and Political Power: implications for Indian federalism”, Third World Quarterly, 28(3), pp. 555-570.

Straus, S., (2012). “Wars do end. Changing Patterns of Political Violence in Sub-Saharan Africa”, African Affairs, 111(443), pp. 179-201.

Thomas, K.W., (1992). Conflict and negotiation processes in organisations. In: Dunnette, M.D. and L.M. Hough eds. Handbook of industrial and organisational psychology. Palo Alto, CA, Consulting Psychologists Press. pp. 651-717.

Tull, D. M., (2006). “China’s engagement in Africa: scope, significance and consequences”, The Journal of Modern African Studies, 44(3), pp. 459-479.

Volkema, R. J., & Bergmann, T. J., (1995). “Conflict styles as indicators of behavioural patterns in interpersonal conflicts”. The Journal of Social Psychology, 135 (1), pp. 5-15.

World Bank (2015). “World Development Indicators’, World Bank Publications http://www.gopa.de/fr/news/world-bank-release-world-development-indicators-2015 (Accessed: 25/04/2015).