Terms-of-trade and counterterrorism externalities

Subhayu Bandyopadhyay, Todd Sandler and Javed Younas

Oxford Economic Papers, 2020, vol. 72, issue 2, 293-318

Abstract: This article investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation’s defensive counterterrorism efforts, while transferring some of its attacks abroad. Terms-of-trade considerations lead the developed nation to raise its counterterrorism level beyond the ‘small-country’ level, thus compounding its overprovision of these measures. By contrast, the developing nation limits its defensive countermeasures below that of the small-country level. This asymmetry is a novel finding. The analysis is extended to include proactive countermeasures to weaken the terrorist group. Again, the developed country raises its efforts owing to the terms-of-trade externality, which now opposes the underprovision associated with proactive efforts. A second extension allows for several developing-country exporters of the primary product.

JEL-codes: D62 F11 F51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Working Paper: Terms-of-Trade and Counterterrorism Externalities (2017)
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