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Foreign Financial Flows and Terrorism In Developing Countries

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  • Amar Iqbal Anwar
  • Mazhar Mughal

    (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)

Abstract

This study examines the differential response of various international financial flows to post 9/11 episode of terrorism in developing countries. Using monthly data for the period from January 2003 to June 2013, we employ ARMAX technique to analyze the impact of terrorism in Pakistan on the inflows of foreign direct investments (FDI), portfolio investments, migrant remittances and exports receipts. We find that FDI falls substantially as a result of terrorist activity, whereas portfolio investments and exports show little change. In contrast, migrant remittances show a significant increase. These differences are also visible among financial flows coming from major source regions and countries. The results are robust to use of alternative definitions and indicators of terrorism as well as the inclusion of various macroeconomic variables. These findings indicate that foreign private capital flees an economy suffering from terrorism whereas domestic producers stay put. Migrant remittances, however, are the only financial flows that rise in the time of difficulty.

Suggested Citation

  • Amar Iqbal Anwar & Mazhar Mughal, 2013. "Foreign Financial Flows and Terrorism In Developing Countries," Working Papers hal-01885149, HAL.
    • Handle: RePEc:hal:wpaper:hal-01885149
    Note: View the original document on HAL open archive server: https://univ-pau.hal.science/hal-01885149
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    References listed on IDEAS

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    Cited by:

    1. Shah, Mumtaz Hussain & Faiz, Mehreen, 2015. "Terrorism and Foreign Direct Investment: An Empirical Analysis of SAARC Countries," MPRA Paper 82008, University Library of Munich, Germany.
    2. Mazhar Yasin Mughal & Amar Iqbal Anwar, 2015. "Do migrant remittances react to bouts of terrorism?," Defence and Peace Economics, Taylor & Francis Journals, vol. 26(6), pages 567-582, December.
    3. Abrahms, Max & Dau, Luis Alfonso & Moore, Elizabeth M., 2023. "Should I stay or should I go now? Understanding terrorism as a driver of institutional escapism," International Business Review, Elsevier, vol. 32(4).

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    More about this item

    Keywords

    Remittances; Portfolio investment; Terrorism; 9/11; FDI; Exports; Developing countries; Pakistan;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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