Profiting from FDI in conflict zones

This paper examines how firm experience with armed conflict and host country engagement in conflict jointly affect the profitability of foreign subsidiaries. We test our hypotheses using a sample comprising 33,620 observations of foreign subsidiaries of 693 UK firms in 212 countries over the period 1999-2008. We show that (1) firm experience with conflict has a horizontal S-shaped relationship with subsidiary profitability, (2) extrastate conflict in the host country is positively related to subsidiary profitability and (3) the impact of firm experience with conflict is negatively moderated by the level of engagement of the host country in extrastate conflicts.