Terrorism and U.S. and Chinese Overseas Foreign Direct Investment in the Developing World

ABSTRACT Much scholarship finds a negative but inconsistent statistical relationship between host‐state terrorism and overseas foreign direct investment (FDI). However, empirical studies generally have not investigated terrorism in the context of Chinese overseas FDI. Comparing United States and Chinese overseas FDI for up to 107 developing countries from 2004–2018, and using a Two‐Stage‐Difference‐in‐Difference approach as well as a dynamic panel data analysis approach (i.e., the System General Method of Moments), we find a negative and at times statistically significant association between terrorism and U.S. FDI and a positive and frequently statistically significant relationship between terrorism and Chinese FDI, and this is true for both Chinese public and private investors. We argue that the U.S. and Chinese governments have different effects on overseas FDI, where the U.S. has a limited impact while China often encourages its firms to tolerate risk. Our research suggests that the nature of home governments affects the risk perception of their overseas investors.