Globalization, Extractive FDI and the Effects of Multinational Corporations on Conflict Situations in Developing Countries

This dissertation explores the concept of globalization as a new world era, andexamines changes in the patterns of global FDI flows, with a focus on Extractive FDIinflows to Third-World or developing countries. It looks at the increased presence ofmultinational corporations (MNCs) in the extractive regions within developing countriesas an indicator of increased FDI to those regions. Using both a single and multi-casestudyapproach, it critically examines the linkages between the infusion of FDI into theextractive sector of developing economies and the lack of economic development andfailure to realize any tangible benefits of FDI in those regions. With a focus on Nigeriaand the Niger delta region in particular, the course of this research is directed by thefollowing questions:1.) Why has Nigeria not gained more from its oil industry?2.) What effect does foreign investment in the extractive industry have on thebalance of power among the international oil companies, local leaders andauthorities?3.) Does extractive FDI and the activity of oil exploration and production increasethe likelihood on internal conflict within the Niger delta – and some othercountries?The hypotheses are as follows:- Nigeria has not realized much benefit from its oil industry (in terms of povertylevels, unemployment rates and per capita income) as a result of an endemicculture of corruption which has pervaded the elite and government officials(federal, state and local) and led to weak governmental institutions.- Without the implementation and enforcement of development-enabling policies,foreign investment (particularly in the extractive industry) tips the balance ofpower among investing entities, local leaders and authorities in favor ofinvesting entities, such that they have significant influence over key decisionmakingprocesses in host countries, thereby eroding host countries’ sovereignty.- There is a relationship between extractive FDI, the activity of oil explorationand production and the persistent conflict situation in Nigeria which is owing tothe contentious nature of oil.This study contributes to the literature by examining the relationship between oilexploration and production using FDI inflows as a proxy indicator, conflict patterns andthe resultant lack of economic development in Nigeria. It also offers the opportunity toassess the differential impact of extractive and non-extractive FDI on conflict.The term ‘Extractive’ FDI refers to foreign indirect investment that is directedtowards the extractive sector particularly in the mining of oil and petroleum products aswell as gold, diamonds and other gemstones. All other types of FDI, i.e. FDI directedtowards other sectors of the economy, are referred to as ‘non-Extractive’ FDI.It is the position of this research effort that a deeper understanding of theunderlying correlations between Extractive FDI and the tendency towards conflict indeveloping countries as well as an understanding of the factors that fuel the conflict, willchart the way for changing the dynamics of those relationships in order to achieveeconomic development. It will also help to formulate what the role of governments andMNCs should be in promoting relative peace and harmony in conflict-torn regions.