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Are lives a substitute for livelihoods ? Terrorism, security, and U.S. bilateral imports

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  • Mirza, Daniel
  • Verdier, Thierry

Abstract

What is the impact of terrorism on trade through higher security at the borders? The authors set up a theory which shows that the impact goes not only from terrorism to trade. Higher trade with a partner might, in turn, increase the probability of terrorism acts and make security measures more costly for total welfare. To identify the true impact of terrorism, their theory allows for a strategy to condition out the latter mechanism. The authors show in particular how past incidents perpetrated in third countries (anywhere in the world except the origin or targeted country) constitute good exogenous factors for current security measures at the borders. Their tests suggest that terrorist incidents have a small effect on U.S. imports on average, but a much higher effect for those origin countries at the top of the distribution of incidents. In addition, the level of the impact is up to three times higher when the acts result ina relatively high number of victims, the products are sensitive to shipping time, and the size of the partner is small. The authors further show how terrorism affects the number of business visas given by the United States, thereby affecting significantly U.S. imports in differentiated products. These results suggest that security to prevent terrorism does matter for trade.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4094.

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Date of creation: 01 Dec 2006
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Handle: RePEc:wbk:wbrwps:4094

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Keywords: International Terrorism&Counterterrorism; Transport Security; Economic Theory&Research; Country Strategy&Performance; Free Trade;

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Cited by:
  1. 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.
  2. Christophe Gouel & Nina Kousnetzoff & Hassan Salman, 2008. "Commerce international et transports : tendances du passe et prospective 2020," Working Papers, CEPII research center 2008-28, CEPII research center.
  3. James E. Anderson, 2008. "Terrorism, Trade and Public Policy," Boston College Working Papers in Economics, Boston College Department of Economics 701, Boston College Department of Economics.
  4. Matthieu Crozet & Pamina Koenig & Vincent Rebeyrol, 2008. "Exporting to Insecure Markets: a Firm-Level Analysis," Working Papers, CEPII research center 2008-13, CEPII research center.

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