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Terrorism and the Economics of Trust

Author

Listed:
  • S Brock Blomberg

    () (Claremont McKenna College)

  • Gregory D Hess

    (Claremont McKenna College)

  • Daniel YJ Tan

    (Pomona College)

Abstract

Previous research has shown that trust is an important component that encourages investment and capital formation which, in turn, enhances economic performance. This article investigates the effect of terrorism on income, including its indirect role through lowering trust. We consider terrorism as a factor that can increase the cost of investing in technology and capital formation due to its ability to diminish trust in an economy. We then develop a novel and rich dataset spanning 179 countries from 1968 to 2007 using associated community, social, cultural, political, and economic factors from the World Values Survey and international terrorism incidence data from ITERATE. Using empirical tests, we first show that terrorism has a negative and statistically significant impact on individual income. This impact is larger than what has previously been found, possibly due to aggregation effects and data selection. We then estimate the societal impact of terrorism on economic growth by examining the extent to which terrorism taxes trust and how this, in turn, hinders economic performance. Consequently, we develop a measure of the economic consequences of terrorism through sizing the magnitude of the ‘trust tax’ from terrorism. We find that the trust tax is relatively minor compared to the direct impact of terrorism on income.

Suggested Citation

  • S Brock Blomberg & Gregory D Hess & Daniel YJ Tan, 2011. "Terrorism and the Economics of Trust," Journal of Peace Research, Peace Research Institute Oslo, vol. 48(3), pages 383-398, May.
  • Handle: RePEc:sae:joupea:v:48:y:2011:i:3:p:383-398
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    Cited by:

    1. repec:eee:phsmap:v:482:y:2017:i:c:p:74-86 is not listed on IDEAS
    2. Paschalis Arvanitidis & Athina Economou & Christos Kollias, 2016. "Terrorism’s effects on social capital in European countries," Public Choice, Springer, vol. 169(3), pages 231-250, December.

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    Keywords

    growth; political economy; terrorism;

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