Abstract
How does conflict affect firms’ investment decisions? Past results are mixed: a third of the studies we reviewed report null or mixed correlations; some suggest that conflict increases investment. We rationalize these results, arguing that armed conflict has divergent effects depending on firms’ exposure to violence. Conflict can deter investment by disrupting production or raising uncertainty. Yet, conflict can encourage investment by hampering government oversight. We argue that each mechanism operates over different geographic extents. We use data from the mining sector to test these claims and report three main results. Firms operating at conflict sites dramatically reduce investments. By contrast, firms operating in territory surrounding conflict, but separated from fighting, actually increase investment. Firms far from violence see a small negative effect. These divergent responses cannot be inferred from aggregate flows: we show that conflict depresses aggregate investment, but this reflects responses among firms far from fighting.
Darin Christensen
Associate Professor of Public Policy and Political Science
Associate Professor of Public Policy working on the political economy of conflict and development
Graeme Blair
Associate Professor of Political Science
Associate Professor of Political Science researching comparative politics with a focus on West Africa and experimental methodology