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The effects of terrorism on trade: a factor supply approach

Author

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  • Subhayu Bandyopadhyay
  • Todd Sandler

Abstract

The conventional view of terrorism is that it raises risks and, as a result, reduces trade. The authors use a factor supply approach to show that this hypothesis is not necessarily correct. They use a two-good, two-factor, small open economy model to show that terrorism can either reduce or raise trade depending on critical factors, such as the impact of terrorism on the intensive factor of the export or the import sector. They then extend the analysis to models with several goods and factors and identify conditions under which trade may rise or fall with a greater incidence of terrorism. Finally, they provide an analysis of the effects of terrorism on trade in the presence of an optimal counterterrorism policy. The authors find that a nation?s adjustment of its counterterrorism level in response to a greater terrorist threat may moderate the impact of terrorism on trade.

Suggested Citation

  • Subhayu Bandyopadhyay & Todd Sandler, 2014. "The effects of terrorism on trade: a factor supply approach," Review, Federal Reserve Bank of St. Louis, vol. 96(3), pages 229-241.
    • Handle: RePEc:fip:fedlrv:00026
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    References listed on IDEAS

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    1. Blomberg, S. Brock & Hess, Gregory D. & Weerapana, Akila, 2004. "Economic conditions and terrorism," European Journal of Political Economy, Elsevier, vol. 20(2), pages 463-478, June.
    2. Khusrav Gaibulloev & Todd Sandier, 2011. "The Adverse Effect of Transnational and Domestic Terrorism on Growth in Africa," Journal of Peace Research, Peace Research Institute Oslo, vol. 48(3), pages 355-371, May.
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    6. Bandyopadhyay, Subhayu & Sandler, Todd, 2014. "Immigration policy and counterterrorism," Journal of Public Economics, Elsevier, vol. 110(C), pages 112-123.
    7. Nitsch, Volker & Schumacher, Dieter, 2004. "Terrorism and international trade: an empirical investigation," European Journal of Political Economy, Elsevier, vol. 20(2), pages 423-433, June.
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    Cited by:

    1. De Sousa, José & Mirza, Daniel & Verdier, Thierry, 2018. "Terror networks and trade: Does the neighbor hurt?," European Economic Review, Elsevier, vol. 107(C), pages 27-56.
    2. Subhayu Bandyopadhyay & Hristos Doucouliagos & Cong S. Pham, 2021. "Effects of neighboring nation terrorism on imports," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 144-167, July.
    3. Saima Sarwar & Muhammad Wasif Siddiqi & Abdul Nasir & Zahoor Ahmed, 2016. "New Direction to Evaluate the Economic Impact of Peace for Bilateral Trade among World Economies," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 725-740.
    4. Amjad Naveed & Ghulam Shabbir & Shabib Haider Syed & Muhammad Ashfaq & Muhammad Ali Khan, 2022. "Can a path to peace promote export growth? Evidence from Pakistan and its trading partners," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(5), pages 3309-3324, October.
    5. Ummad Mazhar, 2021. "Women empowerment and insecurity: firm-level evidence," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 56(1), pages 43-53, January.
    6. Subhayu Bandyopadhyay & Todd Sandler & Javed Younas, 2016. "Terrorism, Trade and Welfare: Some Paradoxes and a Policy Conundrum," Working Papers 2016-2, Federal Reserve Bank of St. Louis.

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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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