Strategic Interactions between Terrorism and FDI: A Theory-Based Model and Comparative Evidence from Egypt and Israel

This study proposes an integrated theoretical framework to explain the mutually constitutive relationship between terrorism and foreign direct investment (FDI) in conflict-affected political economies. Drawing on rational choice theory, signaling mechanisms, business-environment arguments, and strategic targeting approaches, the article demonstrates how economic flows and political violence interact through expectations, perceptions of risk, and state–market signaling. By embedding a mathematical representation of these dynamics, the study advances conceptual clarity and provides an analytical tool for examining asymmetric effects and nonlinear responses. While comparative evidence from Egypt and Israel supports the plausibility of the framework, the primary contribution lies in theorizing how states strategically mobilize economic instruments in response to sub-state violence, and how non-state actors adapt to perceived shifts in state capacity and international engagement. The findings highlight the need to reconceptualize terrorism–FDI interactions not merely as linear causal sequences, but as evolving behavioral strategies situated within broader political–economy contexts.