Do US Interventions Affect FDI Flows

Abstract : US military presence around the world is usually justified as necessary to maintain stability. Stability enhances security and promotes economic activity, thereby contributing to world economic growth. But the connection between stability and economic activity, though appealing, is difficult to quantify. Because it is difficult to assess the importance of US presence for continuous control in the international arena, this study concentrates on events that have required direct intervention. We will address the question of the impact of US military actions on business decisions by investigating the possible connection between overt military action and international investment flows. We concentrate on US actions in the last 30 years, and try to associate them with the evolution of investment flows. We address the following questions: (1) Can the action be interpreted as a correction to a deterioration in stability? (2) Does the evolution of investment flows support the idea that the action was (was not) a correction to a problem? Our results suggest that US military actions affect FDI only when the action helps resolve an uncertainty/crisis.