The effects of African civil conflicts on FDI: The moderating role of bilateral political relations

Abstract

Civil conflicts have replaced international conflicts as the primary political risk to the stability and prosperity of Africa, bringing uncertainty to foreign direct investment (FDI). Meanwhile, closer bilateral political relations provide institutional guarantee to safeguard the interests of stakeholders. This paper investigates the influence of civil conflicts on foreign direct investment in Africa, and the modulating role of bilateral political relations between home and host countries. We relax the assumption that all forms of civil conflicts are homogenous in the effects on FDI and construct a unique data set for FDI to Africa from China, the United States, and Europe between 2013 and 2019. The study results show significant FDI-deterring effects of civil conflict and one-sided violence, with the former more pronounced in low-income and sub-Saharan African countries and to Chinese and British investors. And closer bilateral political relations can alleviate the detrimental effects of civil conflicts, especially one-sided violence, on FDI. Our findings confirm the strategic role of bilateral relationship in ensuring the interest of Chinese multinational corporations and the stability and prosperity of African countries.