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Open Access Publications from the University of California

Capital and chaos : fragile states, political risk and foreign direct investment

  • Author(s): Graham, Benjamin A. T.
  • et al.
Abstract

Fragile states are trapped in cycles of poverty, violence, and instability. War and instability deter investment. Low investment retards growth, and lack of growth engenders further conflict and instability. One path out of this equilibrium is for fragile states to succeed in attracting foreign direct investment (FDI) while political risk remains high. My dissertation explores firm-level variation in how investors experience and respond to political risk, identifying types of investors who are, and are not, willing to invest in post-conflict and other fragile states. I then explore the mechanisms through which these investors manage political risk. I focus specifically on foreign firms that specialize in political risk management, and on diasporans (i.e. migrants and their descendents), a group of potential investors that is theorized to be particularly willing to, and capable of, investing in fragile states. Empirically, I exploit both time-series-cross-sectional data on dyadic FDI between states, as well as firm-level data from an original survey of foreign firms in the post-conflict country of Georgia

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