Opportunity amidst explosions: How armed conflicts spark informal entrepreneurship in emerging economies

Abstract

Armed conflicts, such as a surge in bombings, shelling, and other violent outbreaks, dramatically affect national economies and business activities. This article aims to merge the previously separate research streams on foreign direct investment (FDI) and informal entrepreneurship, illustrating how these elements interact within the context of armed conflict. Utilizing data from eight emerging economies over 16 years, we construct a two-step mediation model to demonstrate that increased armed conflict reduces FDI, enabling informal entrepreneurship. Our study offers two important insights: First, it introduces a novel perspective on armed conflict as an external enabler of informal entrepreneurship. Second, it uncovers three pivotal mechanisms—legitimation, demand substitution, and resource access—through which the decline in FDI resulting from armed conflict intensification stimulates informal entrepreneurial activity. The findings of this study contribute not only to academic discourse at the intersection of international business and entrepreneurship, but also provide practical insights that are essential for shaping policies, guiding international business strategies, and fostering economic resilience in regions affected by violence and instability.