Global map visualizes FDI flow and the impacts of governance and terrorism.

Unlocking Investment: How to Combat Terrorism and Corruption Worldwide

Jordan Keane in Business & Economy August 2025 • 4 min read.

"New Research Reveals the Surprising Role of Good Governance in Attracting Foreign Investment, Even in the Face of Terrorism."

In an increasingly interconnected world, nations are constantly seeking ways to bolster their economies and improve the quality of life for their citizens. Foreign Direct Investment (FDI) has long been recognized as a critical component of economic development, bringing with it not only capital but also expertise, technology, and access to global markets. However, the flow of FDI is not always smooth, especially for nations grappling with challenges like terrorism and corruption. These factors can significantly deter foreign investors, creating a cycle of economic instability and hardship.

Recent research sheds light on the intricate relationship between terrorism, corruption, and FDI, offering insights into how countries can navigate these challenges. A study by Efobi, Asongu, and Beecroft examines the impact of foreign aid on terrorism and FDI, particularly when conditioned by domestic levels of corruption control. This study, conducted across 78 countries over the period 1984-2008, reveals some surprising findings that could reshape global investment strategies.

Conventional wisdom suggests that development assistance is essential to mitigate the adverse effects of terrorism on FDI. The logic is simple: terrorism-afflicted countries often lack the economic resources to combat these threats effectively. Foreign aid can bolster counterterrorism efforts, provide essential services, and address the root causes of radicalization. However, the effectiveness of foreign aid is not guaranteed. The study challenges this notion, proposing that the institutional structure, especially corruption control, in recipient countries plays a pivotal role in determining the success of these investments.

The Corruption Connection: Why Good Governance Matters

Global map visualizes FDI flow and the impacts of governance and terrorism.

The study's most striking finding is that the negative impact of terrorism on FDI is most pronounced in countries with weak corruption control. In other words, when corruption is rampant, the threat of terrorism becomes an even greater deterrent to foreign investment. This makes intuitive sense: investors are wary of putting their money in countries where corruption undermines the rule of law, increases the cost of doing business, and creates an uncertain regulatory environment. Terrorism amplifies these concerns, making it even less likely that investors will take the risk.

Moreover, the research indicates that foreign aid only mitigates the negative impact of terrorism on FDI when corruption is well-managed. This suggests that simply throwing money at the problem is not enough. Aid must be accompanied by strong governance structures that ensure funds are used effectively and transparently. Without such safeguards, aid may be diverted, misused, or simply ineffective, doing little to improve the investment climate. The distribution of bilateral and multilateral aid further complicates the matter.

Bilateral Aid: Often more effective in reducing transnational terrorism due to closer oversight by donor countries.
Multilateral Aid: Reduces the impact of both transnational and unclear forms of terrorism, expanding investment.
Corruption Levels: Countries with higher corruption control see a clearer, positive effect from aid on FDI.

While bilateral aid appears more effective in reducing the adverse impact of transnational terrorism, the study also finds that multilateral aid can curb the adverse effects of both transnational and domestic terrorism on FDI. This nuanced understanding is essential for policymakers seeking to optimize the allocation of foreign aid. Understanding this complexity is key to developing effective strategies. The research underscores that institutional quality is more than just a buzzword; it's a critical factor that determines whether foreign aid can effectively combat terrorism and attract investment.

Policy Implications: A Call for Good Governance

The findings of this study have profound implications for policymakers and international development organizations. To attract foreign investment and foster economic growth, countries must prioritize corruption control and institutional reforms. Foreign aid should be strategically allocated, with a focus on supporting countries that demonstrate a commitment to good governance. Blanket approaches to foreign aid are unlikely to be effective; instead, aid programs should be tailored to the specific context of each country, taking into account the level of corruption, the nature of terrorist threats, and the capacity of government institutions.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.2139/ssrn.2586355, Alternate LINK

Title: Foreign Direct Investment, Aid And Terrorism: Empirical Insight Conditioned On Corruption Control

Journal: SSRN Electronic Journal

Publisher: Elsevier BV

Authors: Uchenna Efobi, Simplice A. Asongu, Ibukun Beecroft

Published: 2015-01-01

Everything You Need To Know

Why is Foreign Direct Investment (FDI) considered so important for countries looking to grow their economies?

Foreign Direct Investment, or FDI, is crucial because it brings not only capital but also expertise, technology, and access to global markets, all of which are vital for economic development and improving the quality of life in a nation. Without FDI, countries may struggle to modernize their industries, enhance productivity, and integrate into the global economy, potentially leading to slower economic growth and reduced opportunities for their citizens.

According to the research, how does corruption control affect the relationship between foreign aid, terrorism, and Foreign Direct Investment (FDI)?

The research by Efobi, Asongu, and Beecroft indicates that corruption control significantly impacts the effectiveness of foreign aid in mitigating the negative effects of terrorism on FDI. Specifically, the negative impact of terrorism on FDI is most pronounced in countries with weak corruption control. This suggests that foreign aid is only effective when accompanied by strong governance structures ensuring funds are used transparently and effectively.

In what ways do bilateral and multilateral aid differ in their effectiveness against terrorism, and how does corruption control play a role in these outcomes?

Bilateral aid is often more effective in reducing transnational terrorism due to closer oversight by donor countries, which allows for better monitoring and accountability. Multilateral aid, on the other hand, can curb the adverse effects of both transnational and domestic terrorism on FDI, making it a versatile tool for addressing various forms of terrorism. Countries with higher corruption control see a clearer, positive effect from aid on FDI.

Based on this information, what strategies should countries implement to attract Foreign Direct Investment (FDI) in the face of both terrorism and corruption?

For countries dealing with both terrorism and corruption, the research suggests prioritizing corruption control and institutional reforms to attract FDI. Foreign aid should be strategically allocated to support countries demonstrating a commitment to good governance. Aid programs should be tailored to the specific context of each country, considering the level of corruption, the nature of terrorist threats, and the capacity of government institutions.

What are the broader implications of this study regarding the importance of institutional quality and good governance in attracting foreign investment and combating terrorism?

The study's findings imply that institutional quality is critical in determining whether foreign aid can effectively combat terrorism and attract investment. Corruption undermines the rule of law, increases the cost of doing business, and creates an uncertain regulatory environment, which deters foreign investment. Without strong governance structures, aid may be diverted, misused, or simply ineffective, failing to improve the investment climate. Therefore, policymakers and international development organizations should focus on promoting good governance to enhance the effectiveness of foreign aid.