The impact of terrorism on FDI in affected emerging and frontier markets

This study investigates the impact of terrorism on foreign direct investment in emerging and frontier markets. Data on foreign direct investment, terrorism and a number of measures potentially influencing foreign direct investment were retrieved in order to conduct an empirical analysis ought to test the causal effect of terrorist acts of violence and the mere threat of terrorism on foreign direct investment as a whole or sector specific. Additionally, a real options model is laid out, which illustrates investors’ behavior in light of a threat of terrorism. Using a fixed effects model approach, the study found no evidence of an impact of terrorism on foreign direct investment in any way, irrespective of the sector.