Working Paper: CEPR ID: DP5360
Authors: Claude Berrebi; Esteban F. Klor
Abstract: This paper uses scoring matching techniques and event study analysis to elucidate the impact of terrorism across different economic sectors. Using the Israeli-Palestinian conflict as a case study, we differentiate between Israeli companies that belong to the defence, security or anti-terrorism related industries and other companies. The findings show that whereas terrorism has a significant negative impact on non defence-related companies, the overall effect of terrorism on defence and security-related companies is significantly positive. Similarly, using panel data on countries' defence expenditures and imports from Israel, we find that terror fatalities in Israel have a positive effect on Israeli exports of defence products. These results suggest that the expectation of future high levels of terrorism has important implications for resource allocation across industries.
Keywords: defence sector; stocks; returns; terrorism
JEL Codes: D74; G14; L64; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Terrorism (H56) | Non-defense-related companies (H56) |
| Terrorism (H56) | Defense and security-related companies (H56) |
| Expectation of future high levels of terrorism (D84) | Stock market valuations for defense-related firms (H56) |
| Terror fatalities in Israel (H56) | Israeli exports of defense products (H56) |
| Terrorism (H56) | Average stock market valuation of Israeli companies (G24) |
| Terrorism (H56) | Differential effects across industries (L69) |