An Injury to One Is an Injury to All: Terrorism's Spillover Effects on Bilateral Trade

Cong Pham and Chris Doucouliagos

No 10859, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper we investigate whether the effects of terrorism in one country spillover to affect trade in neighboring nations. Using a sample of more than 160 countries from 1976 to 2014, we report robust evidence that terrorist attacks in a nation's contiguous neighbors significantly reduce bilateral trade. Each additional terrorist attack in a neighboring country reduces bilateral trade by nearly 0.013% on average, which translates into a reduction of about $6.4 million USD in total trade. Trade effects from terrorist incidents are higher in sub-Sahara. Adverse trade effects hold for different flow and stock measures of terrorism, and even for terrorist incidents with zero casualties. Spillovers from terrorism are relatively long-lived, depressing bilateral trade up to five years after a terrorist event. Our findings are consistent with terrorism adversely impacting bilateral trade through several channels: psychological distress, higher trade costs arising from increased trade insecurity and regulatory burden, and adverse effects on income and trade reform.

Keywords: terrorism; spillovers; bilateral trade (search for similar items in EconPapers)
JEL-codes: D74 F14 H56 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2017-06
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (9)

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