Replication Data for: Terrorism, Counterterrorism Aid, and Foreign Direct Investment

Foreign investors generally refrain from entering countries with high political risks. As an often seen type of political risks, terrorism may deter foreign investors away by creating an unsafe investment environment. In reality, this may not be true because terrorism in fact prevails in the developed world where FDI flows all the time. This paper explores whether terrorism reduces FDI inflows, and argues that foreign investors adjust their information by observing whether the host country has the capability to deal with terrorism. Foreign aid from the United States that is used specifically for counterterrorism is a good signal of counterterrorism potential. Using two commonly used terrorism datasets and drawing upon a time-series cross-sectional data analysis, this paper finds that while terrorism plays a role of an obstacle to FDI inflows, countries that receive more counterterrorism aid are less vulnerable to this adverse effect. It also shows that conflict-tied aid has a similar mitigating effect for terrorism's negative impact on FDI.