Emerging from War: An Institutional Perspective on Postwar Foreign Direct Investment Recovery

Abstract

This study investigates patterns of postwar foreign direct investment (FDI) recovery. It is both exploratory, looking at patterns of inbound FDI that are prominent during postwar times, and theoretical, testing factors that might drive these patterns. It addresses a context for business that is underrepresented in international management: the dynamic transition period from war back to peace. Hypotheses are based on the logic of institutional theory. Host country institutions may reduce investment uncertainty for foreign investors, leading to accelerated recovery timelines for investment in those countries. Foreign aid from international development organizations may also signal to foreign investors the institutional suitability of the target country. Empirical analyses (conducted with Accelerated Failure Time survival models) reveal support for hypothesized associations between institution-related uncertainty and FDI recovery rates. However, contrary to expectation, results reveal longer recovery rates for countries that receive development bank aid. The finding has implications for practice, as it suggests that engagement with foreign aid may serve not as a signal of stability and potential, but rather of an increased need of intervention. This study extends the scope of institutional theory in international business by connecting FDI behavior to the behavior of other development organizations in postwar areas.