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Terrorism Networks and Trade: Does the Neighbor Hurt?

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  • de Sousa, José
  • Mirza, Daniel
  • Verdier, Thierry

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. Taken to 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.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7946.

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Date of creation: Aug 2010
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Handle: RePEc:cpr:ceprdp:7946

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Keywords: security; Terrorism; trade;

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References

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  1. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
  2. Mirza, Daniel & Verdier, Thierry, 2008. "International trade, security and transnational terrorism: Theory and a survey of empirics," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 179-194, June.
  3. James E. Anderson & Douglas Marcouiller, 1997. "Trade and Security,I: Anarchy," NBER Working Papers 6223, National Bureau of Economic Research, Inc.
  4. James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-86, December.
  5. S. Brock Blomberg & Gregory D. Hess, 2006. "How Much Does Violence Tax Trade?," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 599-612, November.
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Cited by:
  1. Randall Filer & Dragana Stanišic, 2012. "The Effect of Terrorist Incidents on Capital Flows," CESifo Working Paper Series 3998, CESifo Group Munich.
  2. Colombier, Nathalie & Masclet, David & Mirza, Daniel & Montmarquette, Claude, 2010. "Global Security Policies Against Terrorism and the Free Riding Problem: An Experimental Approach," CEPREMAP Working Papers (Docweb) 1012, CEPREMAP.

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