Concession Stands: How Foreign Investment Incites Protest in Africa

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Darin Christensen
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ESOC Working Paper No. 6

Why do foreign investments that can improve economic welfare also induce protest? Using a newly compiled dataset on commercial mining, commodity prices, and protest in Africa, I first establish that foreign investment projects increase the probability of protest. I then develop a theoretical model to explain these conflicts. I argue that communities have to strike a bargain with companies but have limited information about the value of the project they are hosting. When communities’ expectations exceed what companies are willing to pay, protests result. I marshal two pieces of empirical evidence consistent with this model: first, protests are more likely when mineral prices are elevated and, thus, communities hold inflated expectations about mining projects’ margins; and second, this relationship between mineral prices and protests is mitigated by policies that increase transparency and, thus, help correct the informational asymmetry that generates conflict. I do not find empirical support for common alternative explanations for protest related to environmental risks, in-migration, inequality within mining communities, corruption, or reporting bias. Despite claims that resource extraction fuels armed conflict, I also do not find that these commercial mining projects increase the likelihood of rebel activity at or near mine sites. The conflicts we observe in mining communities are better understood as a consequence of conflictual bargaining over profits than instances of predation by insurgents.

This paper is now forthcoming at International Organization.