Evaluating the spatial spillover effects of political stability and agricultural foreign direct investment on food security

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Chapter 1

Evaluating the spatial spillover effects of political stability and agricultural foreign direct investment on food security.

RESEARCH ARTICLE

Evaluating the spatial spillover effects of political stability and agricultural foreign direct investment on food security.

Despite significant economic progress, the lack of regular access to adequate and nutritious food remains one of the most pressing challenges in today's world, particularly in developing countries. This study investigates the spatial effect of political stability and agricultural foreign direct investment on food security in forty-three developing countries using the spatial Durbin model based on balanced panel data from two thousand five to twenty twenty. Our findings indicate that agricultural foreign direct investment significantly enhanced food security within the host country and neighboring countries. Equally significant is the impact of political stability on food security locally and in nearby countries. Interestingly, the interaction between political stability and agricultural foreign direct investment is also positive and significantly affects food security in the given country and its adjacent countries. We advocate for policies that promote political stability and bolster foreign direct investment in agriculture, given their substantial contributions to improving food security at the regional level.

One. Introduction

Global economic activity, measured by Gross Domestic Product, rebounded significantly from a four point three percent contraction in twenty twenty to four point seven percent growth in twenty twenty-one, with developing countries experiencing a vigorous recovery from a two point five percent decline to nearly six percent during the same period. Despite the economic recovery, problems of food security persist. According to the State of Food Security and Nutrition in the World report, the global number of undernourished individuals rose from five hundred eighty-five million, eight percent of the world population, in twenty sixteen to seven hundred sixty-eight million, ten percent, in twenty twenty-one, with the majority residing in developing countries. This problem is not confined to individual countries, as factors affecting a country's food security can affect other countries' food security because of the growing interdependence of global economies.

Developing countries' economic and social potential does not necessarily yield improved food security outcomes. It confronts a global economic context characterized by fluctuations in growth, trade, climate, and commodity prices. However, agricultural investment plays a crucial role in fostering agricultural growth and reducing poverty and undernourishment. P. Liu summarizes the findings from Food and Agriculture Organization case studies on how foreign agricultural investment affects host communities and countries. Hence, the recourse to foreign direct investments can be an alternative for developing countries. Foreign direct investment inflows to developing countries have increased significantly, rising from thirty-three point eight percent of global inflows in the early two thousands to sixty-six percent by twenty twenty. This surge in foreign direct investment is crucial as it brings expertise, technology, and capital, which can enhance productivity and infrastructure. However, it is essential to recognize that developing nations are not monolithic in their economic structure. As such, the impact of increased foreign direct investment on economic outcomes varies regionally; Africa receives the smallest portion of foreign direct investment, while East and Southeast Asia attract the largest share among developing countries, influencing their respective economic trajectories and development outcomes differently.

Based on the above stylized facts, a positive effect of foreign direct investment inflows on food security is anticipated. Foreign direct investments could play a positive role through their effect on agricultural productivity and they can also be a source of economic development that improves access to food. In fact, empirical research on the influence of foreign direct investment on food security dates back to the nineteen eighties, with an emphasis on the distinction between dependency effects and modernization effects. Although foreign direct investment is generally expected to enhance food security through its role in agricultural productivity and economic growth, this relationship is contingent upon several factors, including governance quality.

According to Tobler's first law of geography, the positive effects of foreign direct investment on the host country's food security can spill over into neighboring countries. Specifically, foreign direct investment in the agriculture sector of host countries can improve food security in terms of food availability in both the host countries and their neighboring countries through increased regional trade. For example, a host country receiving agricultural foreign direct investment might adopt precision farming technologies like GPS-guided machinery, which enhance efficiency and crop yields. The productivity gain often leads to surplus food production, allowing host countries to export staples to neighboring nations. This increase in regional food supply enhances food availability and reduces food price volatility. Additionally, labor mobility is crucial. Workers trained in foreign direct investment-funded agricultural projects, such as operating precision farming equipment or managing high-yield crops, may seek or offer similar opportunities in adjacent countries for higher wages, leading to increased agricultural productivity.

Political stability is one of the crucial factors that impact the investment decisions of multinational corporations. It refers to the absence of sudden and unpredictable government changes, violence, riots, and conflicts under which business functions remain constant and reliable. Multinational corporations seek political stability when investing in the host country because the level of political risk can influence the risk premium incorporated in any investment project. Political stability by fostering effective governance might attract higher foreign direct investment and stabilize market conditions, reduce high food prices, and enhance food access for impoverished populations in both the host and neighboring countries. This can help to improve food security across borders and reduce the risk of supply chain disruptions. In summary, political stability can improve food security in the given politically stable country and its surrounding countries as well as create a favorable environment for foreign direct investment in agriculture, thereby enhancing agricultural production and contributing to food security in both the host country and its contiguous countries.

Considering the aforementioned discussion about the role of political stability and agriculture foreign direct investment in affecting regional food security, a number of key research questions arise. What is the spatial distribution of food security among developing countries? Does spatial dependence exist in the distribution of food security among these countries? Do alterations in political stability and foreign direct investment, as well as their interaction, have spatial spillover effects on food security?

Despite the growing body of literature examining the impact of FDI in agriculture on food security in developing countries, the interplay between political stability, agricultural FDI, and food security has not been extensively studied. Specifically, existing studies often overlook the spatial dimensions of these relationships and fail to account for spatial dependencies and spillover effects that may influence outcomes across different countries. Furthermore, there is inconsistency in how food security and political stability are measured, potentially affecting the generalizability of the findings.

To address these research gaps, this study tests for spatial autocorrelation and identifies the presence of spatial dependence in food security outcomes. It explicitly investigates how factors contributing to a country's food security, such as political stability and agricultural FDI, affect the food security of the neighboring countries. Second, this study employs spatial panel data models to analyze how the interaction between political stability and FDI in agriculture affects food security across various DCs. By integrating spatial econometric techniques, our approach controls for spatial dependencies and identifies potential spillover effects, thereby providing a more nuanced understanding of how political stability and FDI interact to influence food security in different geographical contexts. Third, we use a combined indicator of food security to mitigate criticisms arising from disparate measurement approaches and to enhance comparability across different country categories. In addition, recognizing that political stability can be measured in multiple ways, we incorporate indicators from both the International Country Risk Guide and World Governance Indicators to ensure the robustness and generalizability of our results. According to Slimane et al., FDI is more effectively utilized at the sectoral level rather than in the aggregate, which supports our focus on FDIs specific to the agricultural sector.

The following section provides a comprehensive review of the relevant literature. Section Three describes the variables, data, and methods used for variable construction. Section Four discusses spatial econometric methods. The findings are presented in Section Five and subsequently discussed in Section Six. Finally, the paper concludes with key insights and implications in Section Seven.

Two. Literature review

Two point one. FDI in agriculture and food security nexus

Two point two. Political stability, FDI in agriculture, and food security nexus

Two point three. Political stability and food security

Three. Variable Description, data, and methods

Three point one point one. Regressand variable: food security index

Three point one point two. Regressor one: foreign direct investment in agriculture

Three point one point three. Regressor two: political stability

Three point one point five. Regressor four to eight: control variables

Four. Methods

Four point two. Spatial regression model specification

Five. Results

Five point two. Non-spatial model results and statistical test analysis

Five point three. Results of spatial model evaluations and tests

Spatial rho

Five point four. Effect decomposition of the refined spatial Durbin Model

Five point five. Robustness evaluation

Six. Discussions

Seven. Conclusion

Disclosure statement

Funding

Notes on contributors

Data availability statement

Overview

The study examines how political stability and agricultural FDI contribute to food security in developing countries, highlighting significant spatial spillover effects. The findings advocate for policies that enhance political stability and agricultural investment to improve food security both locally and regionally.

Key Points

1Political stability positively influences food security in developing countries
2Agricultural FDI enhances food security in host and neighboring countries
3The interaction between political stability and FDI is significant for improving food security
4The study uses spatial Durbin models to analyzing food security data
5A lack of food security is a growing problem in developing nations despite economic progress

Details

Authors: Abdullah, Zhanqi Wang, Tasir Khan
Category: Social Sciences

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