Brewing Violence: Foreign Investment and Civil Conflict

• Author: Boliang Zhu,Pablo M. Pinto
• DOI: 10.1177/00220027211073918
• Published date: 01 July 2022
• Date: 01 July 2022
• Subject Matter: Articles

Article

Journal of Conf‌lict Resolution

2022, Vol. 66(6) 1010–1036

© The Author(s) 2022

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DOI: 10.1177/00220027211073918

journals.sagepub.com/home/jcr

Brewing Violence: Foreign

Investment and Civil Conf‌lict

Pablo M. Pinto

1

and Boliang Zhu

2



Abstract

Two prominent features in current world affairs are the unprecedented level of global

economic integration and the growing incidence of intrastate violence. We develop and

test a novel argument linking global integration through foreign investment to intrastate

armed conf‌lict. The presence of multinational corporations in developing countries can

cause market concentration, resulting in high rents. Disputes between governments

and would-be challengers over the appropriation of these rents are likely to turn

violent, increasing the incidence of armed conf‌lict. State capacity mitigates this positive

association between foreign investment and intrastate war. Strong states have the

capacity to deter rebellions, address citizens’demands through institutionalized

mechanisms, and credibly commit to the peaceful resolution of conf‌licts. Using data

from developing countries for over four decades and addressing potential endogeneity

and selection biases, we f‌ind strong support for our hypotheses. Our f‌indings have

important implications for understanding the link between economic interdependence

and conf‌lict.

Keywords

foreign direct investment, multinational corporations, market concentration,

economic rents, state capacity, civil conf‌lict, instrumental variables

1

Hobby School of Public Affairs, University of Houston, Houston, TX, USA

2

Department of Political Science, Pennsylvania State University, University Park, PA, USA

Corresponding Author:

Boliang Zhu, Department of Political Science, Pennsylvania State University, 317 Pond Lab, University Park,

PA 16802-1503, USA.

Email: bxz14@psu.edu

Introduction

A prominent feature of the international economy in the post-war era is the formation of

global production networks built around multinational corporations (MNCs). Over the

same period, there has been a dramatic increase in the number of countries experiencing

political violence and intrastate armed conf‌lict. The percentage of conf‌lict-affected

countries increased steadily during the second half of the twentieth century, to a peak of

20% in the early 1990s (Blattman and Miguel 2010, 4).

The relationship between globalization and conf‌lict has become a source of con-

tention among scholars and practitioners. Theories of commercial liberalism assert that

economic integration promotes peace between states as governments internalize the

losses resulting from the disruptive effect of violent conf‌lict (e.g., Oneal and Russet

1997;Russett and Oneal 2001). Likewise, economic integration increases the op-

portunity costs of resorting to violence to resolve intrastate conf‌licts and disputes.

Governments and rebel groups have incentives to avoid violence because intrastate

wars disrupt cross-border economic exchanges that bring wealth and prosperity (e.g.,

Barbieri and Reuveny 2005;Blanton and Apodaca 2007;Bussmann and Schneider

2007;Gleditsch 2007;Hegre, Gissinger, and Gleditsch 2003).

Yet, the propositions from commercial liberalism on the relationship between

economic integration and intrastate conf‌lict overlook some important features of global

integration. First, commercial liberalism assumes that globalization generates benef‌its

to the economy, and that those benef‌its are uniformly distributed across societal groups

(Schneider 2014, 176). Global integration, however, creates winners and losers within

countries; the uneven distribution of benef‌its and costs has the potential to exacerbate

grievances, increasing incentives to rebel and f‌ight (Bussmann and Schneider 2007;

Hartzell, Hoddie, and Bauer 2010;Olzak 2011). Second, there is an underlying as-

sumption that by promoting economic development, global integration in general

reduces rebels’incentives to f‌ight. A body of critical scholarship suggests that the

relationship between war and development is rather complicated (e.g., Cramer 2006;

Gómez, S´

anchez-Ayala, and Vargas 2015;Maher 2015;Thomson 2011): Although war

severely inhibits development and has signif‌icantly negative impacts on the victims of

violence, under certain circumstances violence can be instrumental in development,

particularly when development is measured as growth in GDP per capita or foreign

direct investment (FDI) inf‌lows. Finally, different forms of globalization, such as trade

and FDI, may affect domestic conf‌lict through different mechanisms. The debate is not

only theoretical but also empirical. Researchers have reported positive, negative, or no

relationship between global integration and civil conf‌lict (see Barbieri and Reuveny

2005;Blanton and Apodaca 2007;Bussmann and Schneider 2007;de Soysa and Fjelde

2010;Hegre, Gissinger, and Gleditsch 2003).

In this article, we present a novel argument linking inward FDI and civil conf‌lict,

which helps reconcile the theoretical accounts and diverging empirical f‌indings. We

build on the insights from the conf‌lict literature which has established that civil wars are

more likely to break out when the opportunities for appropriating rents are high and the

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