Working Paper: CEPR ID: DP7946
Authors: Jos de Sousa; Daniel Mirza; Thierry Verdier
Abstract: In this paper, we study the impact of transnational terrorism diffusion on security and trade. We set up a simple theoretical model predicting that the closer a country is to a source of terrorism, the higher the negative spillovers on its trade. The idea is that security measures, which impede trade, are directed both against the source country of terror and its neighbor countries where terrorism may diffuse. In contrast, we demonstrate that countries located far rom terror could benefit from an increase in security by trading more. Takento the test, we empirically document these predictions. We find (1) a direct negative impact of transnational terrorism on trade; (2) an indirect negative impact emanating from terrorism of neighbor countries; and (3) that trade is increasing with remoteness to terror. These results are robust to various definitions of the neighboring relationships among countries.
Keywords: security; terrorism; trade
JEL Codes: F12; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transnational terrorism (F52) | trade (F19) |
| terrorism in neighboring countries (F51) | trade (F19) |
| remoteness from terrorism (R59) | trade (F19) |