The Relationship Between Foreign Direct Investment and Intrastate Conflict

Abstract: 

Little is known about the effect of corporate ethics and foreign direct investments (FDI) on the onset of intrastate conflict. The overall image that emerges from the literature is that conflict is derived from, but not limited to, population, inequality, mountainous terrain, greed, grievance, ethnic diversity, and corruption. This study analyzes the effects of interfacing corporate ethics and FDI using cross-national time-series logit regression. The analysis reveals that corporate ethics, per capita FDI, and economic capacity are significant factors contributing to conflict onset. This study is part of a growing body of research on the causes of intrastate conflict. In using set variables, this project will contribute to improving present FDI policies for states with weak political institutions. It will also aid future research on similar areas of concern.

Table of Contents: 

    Introduction

    This study seeks to understand the relationship between foreign direct investment (FDI) and political violence in developing countries. More specifically, this study will examine multiple cases which demonstrate if and why FDI perpetuates intrastate conflict. Foreign direct investment is an important topic when discussing the global market because thousands of multinational corporations (MNCs) exist. These MNCs seek fewer regulations on labor laws, lower taxes and tariffs, as well as cheaper manufacturing in foreign countries. MNCs often do not take into consideration the current conditions of the country receiving the investment. This poses a problem because a particular state may not have the ability to function peacefully in the presence of FDI.

    Furthermore, understanding the relationship between FDI and civil conflict may help future leaders develop more effective foreign direct investment policies in order to prevent civil conflict. Very few scientists have tested its effects on civil conflict. Past research has offered many explanations of civil conflict; however, past research has failed to identify the interaction of a bad business environment with FDI as a cause of intrastate conflict. By studying the effects of these variables, scholars will develop a more inclusive knowledge base on the causes of civil conflict.

    In the next section of this paper, I will review the existing literature relevant to my research question. Following the literature review, I will examine the theory that I will use to explain the interaction between corporate ethics and FDI and present the hypotheses that I will test. The theory also will examine other possible explanations of civil conflict onset including weak political and social institutions and pre-existent inequality. Next, I will discuss the results of the statistical analysis of the date. Finally, I will address the significance of the interaction between corporate ethics and FDI.

    Literature Review

    This study seeks to understand the relationship between foreign direct investment (FDI) and political violence in developing countries. More specifically, this study will examine multiple cases which demonstrate if and why FDI perpetuates intrastate conflict.

    In order to understand the effect FDI has on civil conflict, scholars must first analyze what causes the outbreak of intrastate conflict. Collier, Hoeffler, and Rohner (2009) seek to understand what makes countries prone to civil conflict. Some of the factors that have been found to affect the onset of civil conflict include low per capita income, lack of economic development, high inequality, ethnic division, capacity, mountainous terrain, population, and the presence of natural resources (Alfaro et al 2004; Barbieri and Reuveny 2005; Barker and Ricardo 2005; Chowdhury and Mavrotas 2006; Collier, Hoefler, and Rohner 2009; Collier and Hoeffler 2002; Durham 2004; Fearon and Laiton 2003; Lujala 2010; Lujala, Petter, Gleditsch, and Gilmore 2005; Mason 2003; Walter 2004).

    Lack of FDI may negatively impact economic development, as previous research has shown that low gross domestic product (GDP) per capita is associated with the onset of civil conflict. There are many reasons why economically successful states and their private companies chose not to invest in certain places. Mainly, market actors avoid risk by choosing not to invest in countries that are prone to violent conflict (Blanton and Apodaca 2007). In turn, countries undergoing civil conflict will continue to suffer conflict without development. States that allow economic openness will have greater incentive to prevent and settle conflicts within their borders (Blanton and Apodaca 2007). Investors may choose to locate a business in a particular country in order to avoid wage and labor laws, tariffs, and taxes (Addison, Khansnobis, and Mayrotas 2006). FDI may positively impact economic development, leading to a more peaceful state if that state has the capacity to hold foreign direct investment. FDI may have a negative impact on economic development (leading to conflict) if a state does not have the capacity to maintain foreign direct investment (Alfaro et al. 2004; Chowdhury and Mavrotas 2006; Durham 2004). Yet, “the global marketplace provides many “carrots” to promote peaceful resolution of conflicts and to discourage conflicts from reemerging” (Blanton and Apodaca 2007).

    In order for a country to be economically global, it must have access to foreign aid, investment, trade, and technology. These are all characteristics of a country that is on the verge of economic development. Many scholars argue that development facilitates peace (Barbieri and Reuveny 2005; Collier, Hoefler, and Rohner 2009; Collier, and Hoeffler 2002; Fearon and Laiton 2003; Mason 2003; Walter 2004). If a country is wealthy and prosperous, its citizens are less likely to spend the time, effort, and money needed to foster conflict because it is more worthwhile to focus that energy on maintaining peace and generating more growth and prosperity.

    Much like the work of Blanton and Apodaca (2007), Barbieri and Reuveny (2005) analyze the role globalization plays in political conflict. They contend that economic globalization has not investigated sufficiently as a control variable in investigations of the cause of civil conflict. The results demonstrate that trade, FDI, and foreign portfolio investment (FPI) reduced the likelihood of civil conflict present for all states. Internet use reduces the likelihood of civil conflict only for less developed countries. This may be due to the fact that less developed countries (LDC) are not as technologically developed as other states in the global marketplace. Globalization does not affect the likelihood of civil conflict because actors involved in civil conflict do not consider the global economy. If the economy of an LDC becomes globalized, the prevalence of civil conflict will be reduced. This is because the risks of civil conflict would damage the economy and cause outside influences to shy away from trade and investment in countries that are prone to violent conflict.

    Past research has provided reasons to explain why rebel groups form. Motivation ranges from greed to grievance (Walter 2004). Greed is defined as a desire for possible income stemming from conflict, while grievance is defined as a negative emotion resulting from past occurrences regarding the particular conflict. Yet greed and grievance are not the only determinants of civil war. Military and financial feasibility must be present as well (Collier and Hoeffler 2002; Collier, Hoefler, and Rohner 2009).

    Feasibility is an important factor when discussing civil conflict. It must be feasible for individuals and groups to engage in violent conflict rather than search for peaceful solutions. Rebels are motivated by feasibility. Rebellion-as-investment and rebellion-as-business are two empirical explanations of this feasibility (Collier, Hoefler, and Söderbom 2004). Rebellion-as-investment is defined as a form of rebellion that may yield a political or financial payout. It can be inferred that the conflict will last longer if rebels think they will yield positive results. The results range from capture of government revenues to control of natural resources. Rebellion-as-business is conflict that produces a payout in the midst of the fighting. This payout can come in the form of income or sheer satisfaction of the circumstances. Payout, in turn, increases the motivation for conflict. According to the researchers of rebellion-as-business, rebels seem to lose track of the costs of conflict because the benefits exceed them. As long as the rebellion is profitable it will endure. It is also essential to investigate the feasibility of the international community helping to prevent conflict onset. It is also important to understand the conditions under which the collectivity will intervene, because civil conflict has a great negative effect on the flow of society and the success of the economy.

    It is also imperative to understand what keeps war going in order to determine what can stop war. FDI may very well be the factor these countries are missing. If FDI had been present before the war broke out, it is possible that it might not have broken out at all. The presence of FDI would negate the rebellion-as-investment and the rebellion-as-business theories because rebels would have no reason to invest in civil war, nor would they participate in violent civil conflict for the sake of gaining revenue. Assuming the rebels possess some logic skills, it is obvious that they would rather join forces with the privatized countries rather than attacking the government or civilians to achieve their goals. In fact, if FDI existed in these countries the rebellion-as-mistake theory may not exist. Rebels would consider losing the investment before becoming violent.

    It has been posited that the past literature has not sufficiently explained the effects FDI may have on the onset of violent intrastate conflict. Foreign direct investment is an important topic when discussing the global market, yet few researchers have tested its effects on civil conflict. The past research has explained many causes of civil conflict; however, this research failed to identify FDI as a cause of civil war. Understanding the relationship between foreign direct investment (FDI) and civil conflict may help future leaders develop foreign direct investment policies more efficiently, in order to prevent the occurrence of intrastate conflict.

    Theory

    Most foreign corporations seek to maximize profits (while disregarding the needs of the community) and often times have hidden agendas. Corporations desire cheaper labor markets, less regulations, and fewer taxes and tariffs. Corporations relocate companies to regions that are able to serve these interests. In some nations, foreign firms are able to exploit local populations without interference from the nation’s government. For example, if a government of a state offers to sell land to an investor, it is not the job of the investor to make sure that the land is uninhabited. This lack of consideration can lead to the formation of grievances on the part of the locals who are displaced from the land, and the locals may become enraged with the government for not protecting them. They may then be more likely to participate in violent conflict because of their anger.

    In the case of Zambézia, Mozambique, local peasants and foreign investors are in conflict over agricultural and developmental issues. This conflict is being perpetuated by the government of Mozambique. Land in Mozambique is owned by the state, but individuals and communities permanently occupy the land. The government has chosen to sell the land that is currently occupied by local farmers to foreign agriculture investors because the investors promised the government that more jobs, schools, and local development would be made available in return for the land (Norfolk and Hanlon 2012). Despite the locals’ occupation of the land, the government sold the land to a foreign firm and insisted that regulations have been set to ensure that the firm will compensate the locals. Despite the idea that the province of Zambézia is potentially one of the most productive areas of the continent, Mozambique remains one of the poorest countries in the world. On the surface, it seemed as though the country had good objectives, but that was not the case. A study done by the National Directorate of Lands and Forests found that the company was clearing dense native forest to plant new trees in violation of agreements made previously (Norfolk and Hanlon 2012). The forest was being sold for the benefit of the company rather than the community. Quifel, a Portuguese company, was backed by the Bill and Melinda Gates Foundation and others to plant soy, as well as sunflowers for biodiesel. According to this study, the land given to Quifel included the land of 244 farmers who had occupied the land for over ten years (Norfolk and Hanlon 2012). Quifel repeatedly promised the locals that development was coming in the near future; however it never did due to lack of financial resources. The “Hoyo Hoyo” project revealed the tension between local and central authorities and between those who support foreign investment and those who promote local development. This case represents instances in which foreign investment has led to the harm of the locals because the investment was for the benefit of the company rather than the host country. The investment failed to adequately aid development; instead it produced grievances which were precursors to rebellion.

    Foreign direct investment (FDI) is typically considered to be a catalyst for economic growth and prosperity in developing nations. Hence, it should make those societies less vulnerable to civil conflict, since prosperity commonly reduces the risk of civil war. However, FDI intensifies the likelihood of civil conflict onset when placed in conjunction with weak political institutions, inequality, and exploitive corporations. Under these circumstances, FDI does not necessarily increase the gross domestic product; therefore, introducing FDI into a country that does not have the capacity to absorb it is like igniting a match and dropping it into a puddle of gas (Alfaro et al 2004; Durham 2004; Chowdhury and Mavrotas 2006). Because these countries do have poor infrastructures, weak economies, and weak state institutions, they do not possess the capacity to absorb large amounts of foreign investment in ways that will produce economic growth and development. Equally, it is important to investigate why foreign firms invest in nations that lack absorptive capacity. It can be inferred that investors are interested in countries without capacity for development because they will not be held to high standards. Companies invest in states that have weak institutions because that state possesses resources they want; they think they can get access to those resources at a lower cost than in nations with strong institutions and the rule of law. But by making those investments, they make that nation more prone to conflict. FDI will harm such countries by increasing the discrepancies between classes. Pre-existing inequality resulted of competition between local actors. The advent of FDI to a region in this condition will provide one local competitor with advantages over others or it may disadvantage all local competitors. Equally, FDI heightens established grievances, and leads locals to conclude that their grievances are now even less likely to be addressed by the government because the foreign corporation has had far more influence with the government than they have. Once this tolerance is no longer apparent, conflict will be a product of increased inequality as state elites are enriched by the foreign firms in return for the state allowing those firms to extract the resources they want at the lowest possible cost, regardless of the impact on local populations. The circumstances of the poor may be altered, yet relative to the wealthy elite, the gap widens in terms of economic parity. Therefore, the underprivileged class will actually become poorer.

    Karl Marx explained over a century ago that the lower class is expected to rise in violent rebellion against the elite class because of their grievances (Carter 1995). Marx’s theory explains the occurrences of countries that are industrially advanced and have strong institutions, yet the theory also applies to regions with weak institutions and less development. Foreign investment will essentially create the phenomena he predicted. Competition will arise between sectors of society for increased revenue. This struggle will aid in the formation of greed in the minds of the elite sector of the population. Greed is defined as investing in conflict to take resources from others in order to gain profit (Bleaney and Dimico 2011; Garfinkel and Skaperdas 2007). For example, greed can be represented in some autocratic regimes that serve to increase the ruler’s wealth by decreasing taxes using appropriations (Sandler 2000; McGuire and Olson 1996; Olson 2000). When appropriations become excessive the government has to invest more resources into the military and police to counter the rebel forces (Grossman 1995; Sandler 2000).

    Weak political institutions exacerbate instability. Bureaucratic quality and tax capacity are the two most effective approaches for demonstrating state capacity (Hendrix 2010). For example, an institution that has low tax capacity may also not have the capacity, in developmental terms, to support the community it serves. Such a state can be labeled as frail. These institutions may be forms of authoritarian regimes in which the dictators are corrupt (Gurses and Mason 2010). Weak political institutions do not have the means to regulate the actions of foreign investors nor do they have the support to enforce the regulations imposed on market actors. These intuitions have a poor record on the rule of law and possibly may have worse corporate ethic scores. Furthermore, they are more prone to bribery and payoffs by multinational firms who seek access to resources located in that region. They lack legal guidelines that are designed to prevent any one individual or group of individuals from exploiting the local population. Low corporate ethics scores allow for exploitation of local populations; therefore, it is vital to understand the corporate ethics of countries. When this exploitation takes place the exploited population develops grievances towards the government for not protecting them. The grievances lead to a higher probability of rebellion (Collier, Hoefler, and Rohner 2009). Occasionally, foreign direct investment can become a catalyst for growth by providing capital, competition, and aid that encourages investment in technology, human capital, and physical capital (Ajayi 2006). However, some states with high levels of inequality, exploitive corporations, and weak political institutions do not have the capacity to regulate FDI in ways to protect the local population against possible negative side effects of that investment (Mitchell and McCormick 1988). This is because these states do not have access to the privileges of the advanced industrial democracies. These privileges range from human rights laws to hospitals, schools, and technology. Therefore, the implementation of FDI creates additional and/or continued instability in those states.

    Preexisting inequality in a community explains the actions of individuals who are on the lower end of the spectrum in terms of wealth. Individuals, who are politically active, educated, and wealthy, with opportunities to improve their living conditions, are more likely to live in harmony with the government rather than participate in violent rebellion (Walters 2004). On the other hand individuals who are politically disengaged, uneducated, and poor are more likely to rebel in order to bring attention to their living conditions with the hope of improving them drastically.

    Subsequently, preexisting inequality in a developing state increases the risk of political instability. This instability may emerge when a larger share of the workforce is employed by foreign firms rather than local corporations (Barbieri and Reuveny 2005). If FDI is introduced into a politically unstable region, the probability of civil unrest is raised because of the underlying competition between sectors of society. Moreover, private employment will raise inequalities. For example, when private companies, such as Mercedes Benz Manufacturing, relocate to places like South Africa, the gap between the “haves” and the “have nots” widens (Barnes and Kaplinsky 2000). This occurs because some will receive jobs in the firm while others receive no position at all. Those that now have employment will improve their standard of living while those that are not employed will remain in the same circumstance or they may experience conditions far worse than before.

    The long-term relationship between China and Africa is a prime example of greed forming grievances. China is particularly interested in the oil found in, but not limited to Sudan, Ethiopia, Angola, Chad, Algeria, Equatorial Guinea, Gabon, Nigeria, Zimbabwe, Mozambique, and Ghana. Because of the desire to control oil reserves in Sudan, the Chinese have established a relationship with the state by importing cotton, sesame, and metal scraps. In thanks for these products, the Chinese export fabrics and small arms to Sudan (Askouri 2007). The Chinese have also participated in the development of the Merowe dam (also known as the Hamdab dam) which was expected to have displaced, to desert locations, more than 50,000 small farmers living on the riverbanks in 2003. In February of 2005, leading experts on dams and resettlements reported that the displaced farmers had been unable to sell products on the market (Askouri 2007). It is obvious that China is interacting with government officials in Sudan to gain control of the oil reserves while disregarding the living arrangements and conditions of the inhabitants of the region. In short, this case is a prime representation of what greed will lead to in terms of the formation of grievance in the minds of the deprived (Korf 2005). The combination of greed and grievance thus has the potential to result in the onset of civil conflict (Collier, Hoefler, and Rohner 2009).

    Hypotheses

    • H1: In states with low corporate ethics scores, the presence of FDI will lead to conflict.
    • H2: Introducing FDI into nations without the capacity for development will yield violent intrastate conflict.

    Design and Methodology

    The aim of this article is to present and test a theory of civil conflict onset that highlights the effects of FDI as well as a country’s corporate ethics score on the probability of conflict onset. It is, in other words, an attempt to incorporate the interactive effects of corporate ethics and FDI on the onset of intrastate political violence. The study will take into account the business environment in which the FDI operates. The variables will include a corporate ethics score and two measures of capacity (economic capacity and educational capacity), all found in the World Bank’s data indicators. The study will include a measure of FDI found in the United Nations database while using conflict onset data found on the Uppsala Conflict Data Program’s webpage during the years of 1970-2009. FDI data is first available in the year 1970 and 2009 is the latest data recorded. The observations included in this study will come from countries that have corporate ethic scores that are readily available through the World Bank.

    In order to test the likelihood of civil conflict onset, this study will use a cross-national time-series logit regression model. Moreover, the model will include an interaction term for the two variables, corporate ethnic scores and FDI, thereby; producing a new variable entitled “Ethic FDI”. By interacting a country’s corporate ethnic score with its amount of FDI, one may illuminate the prospect of conflict onset occurrence due to a corporate ethics.

    Dependent Variables 

    The dependent variables in this study are Onset 1 and Onset 8. Onset 1 is the “onset of an intrastate armed conflict, greater than or equal to 25 battle deaths; coded as 1 if this is a new conflict or there is more than one year since the last observation of the conflict” (Harbom and Wallensteen 2010). Likewise, Onset 8 is the “onset of an intrastate armed conflict, greater than or equal to 25 battle deaths; coded as 1 if this is a new conflict or there is more than eight years since the last observation of the conflict” (Harbom and Wallensteen 2010). To be coded as an armed conflict in the Uppsala Conflict Data Program (UCDP), cases had to involve two parties, of which one must be the state government. Onset 1 and Onset 8 were used in this model to express the levels of sensitivity concerning various conflicts. Onset 1 is a more sensitive term because it codes each instance in which battle deaths were greater than or equal to 25 each consecutive year. Onset 8 is less sensitive to conflict occurrences per year.

    Independent Variables

    For the purposes of this project, Foreign Direct Investment (FDI), Per Capita FDI (FDI divided by Population), Corporate Ethics Score, and Ethic FDI (an interaction between Corporate Ethics and FDI) are used as independent variables that are hypothesized to lead to the eruption of civil conflict. FDI comes from various governments as well as private multi-national corporations and organizations. The World Bank measures the Corporate Ethics score from 0-100, with 100 being excellent Corporate Ethics and 0 being the opposite. It is important to note that the data only provides a general overview of Corporate Ethic scores, rather than a year by year analysis which would be more accountable. It would be preferable to use a year by year analysis in the model; however, this is the only data existing. Therefore, this data must be used due to the data availability constraints. This term accounts for different business environments in particular countries with the idea being that countries with poor business ethics will mismanage FDI, thereby causing conflict. This study will test the effects of FDI, Per Capita FDI, and Corporate Ethics separately as intrastate causes for the conflict onset. It will also multiply Corporate Ethics with FDI (Ethic FDI) as a cause of conflict onset.

    This study will also include Economic Capacity and Education Capacity as variables of concern. Capacity is a determinant of positive effects of FDI. A country must have the capacity to maintain an inward flow of foreign investment. In the event that a country does possess human capital (measured by Education Capacity) and an open market for trade (measured by Economic Capacity), it will benefit from FDI (Alfaro et al. 2004; Durham 2004; Chowdhury and Mavrotas 2006). These two variables will be used to measure the absorptive capacity of a particular state. Absorptive capacity is a measure of the state’s amount of human capital and level of trade openness. Human capital will be measured by the United Nations education rate. Trade openness will be measured by the total amount of exports and imports divided by the GDP of the country. Those countries that are instable and do not have the capacity for foreign development in the form of investment will likely become more conflict prone.

    Many other causes of armed intrastate conflict have been discovered. Therefore, these causes will be used as controls in the testing process. They will eliminate the potential for biased results. The following variables will be used as controls: ethnic diversity, mountainous terrain, population, oil exportation, infant mortality rate (will proxy for inequality and poverty), types of regimes, as well as types of conflict.

    Controls

    Ethnic Fractionalization is used as in Fearon and Laiton (2003) primarily because ethnic polarization is necessary to understand grievances that stem from disagreement between multiple ethnicities and religions.

    Regime types greatly affect the governance of a state and should therefore be considered. In the models, Polity is used to account for the type of regime of a state.

    Mountainous Terrain is also used as in Fearon and Laiton (2003). Mountainous terrain is related to rebel feasibility for recruitment and insurgence. In regions where mountains are located, rebels have a better chance of surviving against the government’s military capacity. This is advantageous because mountains provide secretive locations for training and housing. Rebels may also use the mountains to strike cities that lie below their station.

    Population is used to analyze the demands on the state. In states with larger populations, the populace may face constraints concerning the amount of resources available for the people and on the state’s capacity to maintain order. Historically, population has been a classic control for civil conflict onset as it has been a significant factor contributing to conflict. This may be attributed to the diversity of the population.

    Research tends to focus on rebel access to natural resources (Lujala 2010; Lujala, Lujala, Petter, Gleditsch, and Gilmore 2005). Therefore, oil exportation can be inferred to be a cause of armed conflict. Not only does oil wealth promote weak institutions and repression, the presence of oil also attracts foreign investors to states that are politically unstable and possess weak institutions. The institutions are weak because investors import oil in order to sell it for profit. Countries that are oil exporters have proven to be more likely to undergo violent conflict (Ross 2006). Weak political institutions that possess corrupt leaders are typically great targets. These leaders export the oil for profit that should (in theory) aid to the development of the state. However, the revenue gained often times does not enter into the market. Oil can be a representative of greed, grievance, and motivation.

    Infant mortality rate (IMR) is often used as an indicator of inequality, poverty, and quality of life generally (Mason et al 2011; Walter 2004). It can also be used to determine if the population under study has access to health care. If the inhabitants of that region could access a hospital for prenatal care as well as delivery, the death rate of infants would decrease. It can be inferred that there is a higher prominence of malnutrition where there is a high IMR. Likewise, it can be concluded that where the IMR is low, the population’s ability to access health care is higher. Research has shown that economically developed countries are less likely to participate in violent conflict (Barbieri and Reuveny 2005; Collier, Hoefler, and Rohner 2009; Collier, and Hoeffler 2002; Fearon and Laiton 2003; Mason 2003; Walter 2004). Equally, LDCs are more likely to participate in conflict because the costs of conflict do not outweigh the cost of rebellion. IMR should be controlled for because it is a good proxy variable for the capacity of an area and for the level of development of a particular area.

    The Government Only variable is “coded 1 if the only active conflict in this country-year is over Government. (Note: there can only be one conflict over the Government incompatibility in a country in a given year)” (Harbom and Wallensteen 2010). Similarly, the Territory Only variable is “coded 1 if all active conflicts in this country-year are over Territory. (Note: there may be one or more contested Territory incompatibilities in a country in a given year)” (Harbom and Wallensteen 2010).

    Results

    Analysis and Discussion of Results

    Table 1 consists of 3 models used to test conflict onset with one year between incidents (models 1, 2, and 3) and 3 models used to test conflict onset with eight years between incidents (models 4, 5, and 6). Model 1 and model 4 demonstrate the effects of FDI and Per Capita FDI on conflict onset while controlling for other causes of conflict onset. In Model 1, it is fairly likely that when a state uses oil presence in the economy, conflict will emerge. However, in model 4, oil does not have an effect on conflict onset. This may be because of the time interval. After eight years, conflicts may be resolved due to an overwhelming victory by one side as a result of FDI backed rebels or puppet governments that cater to the shareholders in the foreign firms. Additionally, the dominant party may have gained control of the oil reserves in that state; whereas, when coding conflict onset in one year intervals, the oil may still be a source of competition. The results of model 4 show that conflict onset is highly probable when Per Capita FDI is minimal in a state. This can be attributed to the struggle of the local population. Members of society struggle to gain access to the basic necessities of life and forgo many of their desires when there is limited opportunity. FDI creates immediate opportunities for employment although the long term effects may have dire consequences to the sovereignty of that nation. In both model l and model 4, conflicts derived from government issues and territorial disputes are both positively correlated and highly significant. Government issues and territorial disputes lead to an exacerbation of conflict because members of the state are insecure. Tensions rise as their land is taken due to significant purchases under FDI or as they are relocated from one track of land to another. Those affected by the move have a tendency to feel disenfranchised as they seek to adjust to new stings and a new environment. This greediness of the government and foreign firms leads to grievances of the people. Broken or delayed promises may lead to additional problems with the government, as they are responsible for negotiating the terms of an agreement with a foreign firm.

    The results also show that when population is high, there is a greater risk for conflict onset. An increased population may contribute to increased conflict because many people compete in order to reap the benefits of FDI in their area, yet not all members of the community will benefit directly. For instance, a corporation is built in a small city or town with a population of 70,000 people. The factory promises to supply 4,500 jobs at the plant and create another 1,800 jobs through transportation, restaurateurs, a new motel, food franchises, and a movie theatre. These 6,300 jobs employ only 9% of the population. What about the other 91% of the community? Will they be pleased while their condition remains unchanged in terms of quality of life? Will they be pleased if their quality of life diminishes? Ethnic Fractionalization is a significant cause of conflict onset in model 1, yet it is not significant in model 4. As in the case of oil presence, ethnic conflict may be unobserved after eight years as the community is encouraged to become homogenous. Ethnicity may disappear in exchange for struggles involving class. FDI may indeed cause those who have benefited, to find common ground in spite of diverse backgrounds.

    Model 2 and model 5 demonstrate the effects of FDI, Per Capita FDI, as well as Corporate Ethics on conflict onset while controlling for other causes of conflict onset. Model 2 shows a positive correlation between conflict onset and FDI. This means when FDI is high, it is somewhat likely that conflict will emerge. Conflicts emerge when FDI is high in this model because not everyone in the population benefits from FDI. Since some win while others lose, it is expected that envy and jealousy will lead to problems. As gaps in benefits emerge in the population, the “haves nots” may become enraged. In model 2, Corporate Ethics are both significant and negatively related to conflict onset. In states with low corporate ethics scores, conflict is more probable. This can be attributed to the ability of foreign firms to bribe government officials, promote those who submit to their interests with respect to long term goals, and purchase prime land that was once used for agri-business. Moreover, workers may be exploited with long working hours, cheap labor, and hazardous working conditions, all of which are better than being unemployed. Furthermore, model 2 shows that when Economic Capacity (Absorptive Capacity) is high there is a greater risk of conflict onset. These results support hypothesis 2 because FDI yields conflict. This is interesting in that imports and exports may cause conflict. This conflict is ignited, once again, because in societies with excellent infrastructure, a skilled population, and the ability to compete in a corporate environment, there are still only a limited number of jobs and opportunities offered as a result of FDI. Therefore, tensions swell in communities and bread-winners become volatile in their demeanor when they lose the opportunity to reach economic parity with those who have been employed as a result of FDI. However, contrary to the hypothesis, the presence of absorptive capacity yields conflict.

    Model 5 shows that Per Capita FDI has a significant and negative correlation with conflict onset. Model 2 and model 5 differ in that both models run the same test with different coding intervals. In model 2, conflicts are coded in one year intervals whereas in model 5 conflicts are coded in eight year intervals. This helps scholars understand why in model 2 FDI is significant but Per Capita FDI is not, while in model 5 Per Capita FDI is significant while FDI is not. This means that in states with low Per Capita FDI, conflict onset is more likely. Again in both model 2 and model 5, conflicts derived from government issues and territorial disputes are both positively correlated and highly significant. The results again show that when population is high, there is a greater risk for conflict onset. In model 2, when Ethnic Fractionalization is high, conflict onset is probable. This probability may be based on language and cultural barriers, in theory. However, in model 4, Ethnic Fractionalization appears to have no significance.

    In model 3 Ethic FDI supports hypothesis 1 because the measure of Corporate Ethics is negatively correlated to conflict onset and fairly significant. In states with poor business ethics, high intrastate conflict onset is likely. Again, in the states possessing the necessary Economic Capacity there is a higher risk of conflict onset. In both model 3 and model 6, conflicts derived from government issues and territorial disputes are both positively correlated and highly significant. Additionally, when population is high, there is a greater risk for conflict onset. In model 3, when Ethnic Fractionalization is high, conflict onset is probable. However, in model 6, Ethnic Fractionalization again appears to have no significance.

    Infant Mortality Rate was used as a proxy for poverty and inequality, yet in all 6 models it has no significant effect on the onset of intrastate conflict. The results reveal that in each of the 6 models, Mountainous Terrain, Education Capacity, and Polity, also have no significant effect on intrastate conflict onset. These four variables were used as controls due to popular belief that poverty, inequality, types of regimes, and educational capacity are all factors that may lead to conflict onset.

    Conclusions

    The purpose of this study was to fill the gap in previous literature on civil conflict onset. This project tests the effect of various economic measures on intrastate conflict onset. More specifically, it provides further insight on the effects of Per Capita FDI and Corporate Ethics on conflict onset within a state. Lack of data has hindered my ability to explain civil conflict onset in this study. For example, the variable Corporate Ethics consisted of generalized data provided by the World Bank. The corporate ethic scores of those states were broad overviews rather than year by year measures. This data shortage has forced me to run models with and without the use of this variable. Future studies will code corporate ethic scores data for each year and each country included in the testing of this data is not readily available. This study can be useful in policy circles as it accounts for varying business practices as well as corporate responsibility.

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    Table 1: Results of Cross-Sectional Time Series Logit Regression

      Model 1:
    Conflict
    onset
    with
    one
    year
    between
    incidents
    Model 2:
    Conflict
    onset
    with
    one
    year
    between
    incidents
    Model 3:
    Conflict
    onset
    with
    eight
    years
    between
    incidents
    Model 4:
    Conflict
    onset
    with
    eight
    years
    between
    incidents
    Model 5:
    Conflict
    onset
    with
    eight
    years
    between
    incidents
    Model 6:
    Conflict
    onset
    with
    eight
    years
    between
    incidents
    Per Capita
    FDI
     -.0005
    (.001)
     -.0002
    (.0005)
     -.00
    1(.003)
      -.003
    (.00009)**
     -.002
    (0009)**
     .002
    (.007)
    FDI  3.55e-12
    (1.17-11)
     1.06e-11
    (6.50e-12)*
     -  -5.74e-11
    (6.83e-11)
     -4.12e-11
    (5.57e-11)
     -
    Corporate
    Ethics
     -  -.022
    (.010)**
     -.023
    (.010)**
     -  -.012(.013)  -.009
    (.014)
    Ethic FDI  -  -  .00001
    (.00004)
     -  -  -.00008
    (.0001)
    Education
    Capacity
     .011 (.017)
    -
     -.037
    (.024)
     -.036
    (.024)
     .012 (.020)  -.018
    (.029)
     -.002
    (.007)
    Economic
    Capacity
     .002 (.003)  .008
    (.004)**
     .007
    (.004)*
     .004 (.004)  .005
    (.006)
     -.003
    (.006)
    Capacity
    Polity
     -.015 (.019)  .040
    (.028)
     .038
    (.027)
     .017 (.025)  .056
    (.038)
     .061
    (.037)
    Oil
    Economy
     .569
    (.280)**
      .436
    (.367)
     .477
    (.362)
     .581 (.357)  .888
    (.447)
     .873
    (.446)**
    Gov’t
    Conflict
     3.28
    (.305)***
     3.27
    (.411)***
     3.26
    (.407)***
     3.51
    (.430)***
     3.62
    (.563)***
     3.62
    (.574)***
    Territorial
    Conflict
     3.24
    (.322)***
     2.84
    (.424)***
     2.81
    (.419)***
     3.18
    (.443)***
     2.98
    (.589)***
     3.01
    (.587)***
    Ethnic
    Fractional-
    ization
     1.20
    (.50)**
     1.31
    (.757)*
     1.29
    (.753)*
     .160
    (.538)
     -.122
    (.872)
     -.074
    (.868)
    Population  2.70e-09
    (6.16e-10)***
     3.29e-09
    (5.95e-10)***
     3.37e-09
    (5.84e-10)***
     2.78e-09
    (8.63e-10)***
     3.26e-09
    (9.11e-10)***
     3.01e-09
    (8.16e-10)***
    IMR  .001
    (.004)
     -.003 (.006)  -.003
    (.007)
     .005 (.004)  .001
    (.007)
     .002
    (.008)
    Mountainous
    Terrain
     .098
    (.084)
     -.056
    (.141)
     -.053
    (.141)
     -.008 (.112)  -.068
    (.175)
      -.085
    (.176)
    Constant  -5.95
    (.531)***
     -4.62
    (.893)***
     -4.55
    (.920)***
     -6.23
    (.654)***
     -5.36
    (1.12)***
     -5.41
    (1.14)***
    Number of
    Observations
     2993  2119  2119  2993  2119  2119

    Notes: 90% ≤ * 95% ≤ * * 99% ≤ * * *