Trade and terrorism
| Author | Subhayu Bandyopadhyay,Javed Younas,Todd Sandler |
| Published date | 01 September 2018 |
| Date | 01 September 2018 |
| DOI | http://doi.org/10.1177/0022343318763009 |
| Subject Matter | Regular Articles |
Trade and terrorism: A disaggregated
approach
Subhayu Bandyopadhyay
Research Division, Federal Reserve Bank of St Louis
Todd Sandler
School of Economic, Political & Policy Sciences, University of Texas at Dallas
Javed Younas
Department of Economics, American University of Sharjah
Abstract
We construct a model of the consequences of terrorism on trade, where firms in trading nations face different costs
arising from domestic and transnational terrorism. Using a dyadic dataset in a gravity model, we test terrorism’s
effects on overall trade, exports, and imports, while allowing for disaggregation by primary commodities and
manufactured goods. While domestic and transnational terrorism have marginal or no significant influence on the
overall trade of primary products, both types of terrorism significantly reduce the overall trade of manufactured
goods. This novel finding for a global sample indicates the avenue by which terrorism reduces trade and suggests why
previous global studies that looked at all trade generally found modest impacts. Moreover, both domestic and
transnational terrorism have a detrimental effect on manufactured imports. The larger apparent reduction for
transnational terrorism is not statistically different from that of domestic terrorism. A more mixed picture char-
acterizes the effect of terrorism on exports. Domestic terrorism reduces manufactured exports and increases primary
exports, while transnational terrorism reduces primary exports. Placebo tests support our hypothesized causality.
Keywords
domestic terrorism, imports and exports, international trade, gravity model, transnational terrorism
Introduction
Some terrorist groups
1
have resorted to attacks that
harmed targeted economies as a means of generating
constituency pressures on governments to concede some
of the groups’ political goals. A clear statement and sur-
vey of the literature concerning this use of economic-
oriented attacks to obtain terrorist goals have been given
by Jackson, Dixon & Greenfield (2007). Terrorist-
induced macroeconomic consequences on gross domes-
tic product (GDP) and economic growth have been
identified (Blomberg, Hess & Orphanides, 2004;
Gaibulloev & Sandler, 2008, 2011). Such detrimental
effects have been particularly large for small terrorism-
plagued countries (Abadie & Gardeazabal, 2003; Eck-
stein & Tsiddon, 2004) when compared to the mean
response of a global sample (Blomberg, Hess & Orpha-
nides, 2004; Sandler & Enders, 2008). Moreover,
terrorism-induced losses at the sector level have been
documented for tourism (Drakos & Kutan, 2003;
Enders, Sandler & Parise, 1992), foreign direct invest-
ment (FDI) (Abadie & Gardeazabal, 2008; Bandyopad-
hyay, Sandler & Younas, 2014; Enders & Sandler,
Corresponding author:
tsandler@utdallas.edu
1
We treat terrorist groups as unitary agents. By terrorists, we mean
the terrorist group.
Journal of Peace Research
2018, Vol. 55(5) 656–670
ªThe Author(s) 2018
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DOI: 10.1177/0022343318763009
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