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GTAP Resource #2087

"Terrorism, Tears and Trade"
by Nitsch, Volker

In recent years, terrorism has become much more violent. While the number of terrorist incidents and the number of countries affected by terrorist activity have been largely constant over the last few decades, the number of injuries and fatalities has increased considerably. In this paper, I use a new panel data set of terrorist activity to identify the effect of terrorism on the pattern of international trade. The data set (obtained from the MIPT terrorism knowledge base) contains detailed information on more than 20,000 terrorist incidents (which have caused about 70,000 injuries and 27,000 fatalities) in 193 countries and territories for the period from 1968 through 2003.
To identify the effect of terrorism on trade, I apply a standard gravity model of trade; my data set covers more than 500,000 observations. Supporting earlier results (e.g., Nitsch and Schumacher, 2004), I find that terrorism significantly reduces trade. The magnitude of the effect varies between 5 to 10 percent, depending on specification. Also, the effect appears to be particularly strong for exporting countries; importing activities in contrast are hardly affected at all by terrorism. Interestingly, incidents with and without injuries have about the same (immediate) negative effect on trade, although the effect of bloody incidents fades out more slowly. Terrorist incidents involving fatalities have the largest and longest lasting effects on trade.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Created: Nitsch, V. (5/1/2006)
Updated: Nitsch, V. (5/1/2006)
Visits: 2,466
No keywords have been specified.

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