Coca-Cola invested $26 million in Afghanistan. Michelin built a new tyre-producing factory in Colombia. Shell increased their interests in Iraq. Contrary to common economic belief, multinationals don’t stay away from countries that are engaged in conflict, new research from Erasmus School of Economics concludes.
Political violence increases the chances of losing human and physical capital. It also leads to disruptions in continuity and drops in local demand. Therefore (in general) economists agree that it’s not beneficial for foreign investments. Sounds quite logical indeed, doesn’t it? But Erasmus School of Economics PhD student Caroline Witte shows in recent research, soon to be published in the Journal of International Business Studies, that the relation between foreign investments and political violence is a little bit more complicated than that.
Terrorism is not War
Ok, it turns out that companies are scared off by war: full-out war decreases foreign investments. Other political violence, like terrorism, oppression, or political murders, however does not. No less than $12 trillion dollars were invested in conflict areas worldwide between 2003 and 2012. What also seems to matter is the type of industry a company is in. The ones active in the manufacturing or service industries do tend to stay away from violence-inflicted countries. Businesses involved in raw materials (oil, gas) or agriculture, on the other hand, are not.
Money over Morals
Even more remarkable: oil and gas companies sometimes invest even more in times of raging violence. Like multinationals with interests in more than 26 countries. It leads the researcher to the following conclusion: ‘The insensibility of companies to political violence in the primary sector can largely be explained by economic factors.’
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