Investigating the links between international business, foreign direct investment and civil war: A case study of Sri Lanka’s tourism sector

It is typically assumed that political violence deters international businesses from investing in countries affected by civil war. However, recent scholarship has uncovered a more complicated relationship, with some scholarship showing that foreign direct investment (FDI) can enter civil war economies unabated and other studies suggesting that countries with civil wars can experience significant increases in FDI. Some of this scholarship – which subscribes to what has become known as a liberal interpretation of war and development – suggests that FDI enters countries with civil wars in spite of the violence. For instance, if violence is located away from areas of economic interest, then inward flows of FDI can continue with little to no disruption. However, a more critical body of scholarship has suggested that, under certain conditions, violence in civil wars can facilitate flows of FDI. For example, armed groups sympathetic to the interests of oil firms can secure areas and infrastructure for commercial activities. Widespread forced displacement also clears land for the expansion of economic activity, causing suffering for large numbers of civilians. While FDI in the extractive industries is bound by geography and international oil firms may have few options but to continue to operate in a country with a civil war, this paper analyses FDI in the services sector. More specifically, this paper investigates how civil war violence impacts FDI in the tourism industry. To do this, the paper discusses the case of Sri Lanka and its tourism sector. The country’s civil war (1983-2009) was often a high intensity conflict and preliminary analysis suggests that tourism was negatively impacted, resulting in lower levels of FDI in this sector. Since 2009, the tourism sector has enjoyed a boom as the civil war ended, with corresponding increases in FDI and business activity. However, the areas most affected by the conflict have seen limited growth in tourism, with low amounts of FDI flowing into these areas. This suggests a more complicated relationship between FDI, war and peace than is recognised in the current scholarship.