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Trade and Terrorism: A Disaggregated Approach

Author

Listed:
  • Bandyopadhyay, Subhayu

    () (Federal Reserve Bank of St. Louis)

  • Sandler, Todd

    () (University of Texas at Dallas)

  • Younas, Javed

    () (American University of Sharjah)

Abstract

This paper constructs a model of trade consequences of terrorism, where firms in trading nations face different costs arising from domestic and transnational terrorism. Using dyadic dataset in a gravity model, we test terrorism’s effects on overall trade, exports, and imports, while allowing for disaggregation by primary commodities and manufacturing goods. While terrorism has little or no influence on trade of primary products, terrorism reduces trade of manufactured goods. This novel finding pinpoints the avenue by which terrorism harms trade and suggests why previous studies that looked at all trade found modest impacts. Moreover, the detrimental effect of transnational terrorism on total manufactured trade, exports, and imports as well as on various classes of manufactured trade is substantially larger than that of domestic terrorism. Generally, this adverse impact is more pronounced for imports than for exports.

Suggested Citation

  • Bandyopadhyay, Subhayu & Sandler, Todd & Younas, Javed, 2016. "Trade and Terrorism: A Disaggregated Approach," Working Papers 2016-1, Federal Reserve Bank of St. Louis, revised 30 Jan 2017.
  • Handle: RePEc:fip:fedlwp:2016-001
    DOI: 10.20955/wp.2016.001
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    File URL: https://dx.doi.org/10.20955/wp.2016.001
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    References listed on IDEAS

    as
    1. Patrick T. Brandt & Todd Sandler, 2010. "What Do Transnational Terrorists Target? Has It Changed? Are We Safer?," Journal of Conflict Resolution, Peace Science Society (International), vol. 54(2), pages 214-236, April.
    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.
    3. Daniel Mirza & Thierry Verdier, 2014. "Are Lives a Substitute for Livelihoods? Terrorism, Security, and US Bilateral Imports," Journal of Conflict Resolution, Peace Science Society (International), vol. 58(6), pages 943-975, September.
    4. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
    5. Drakos, Konstantinos, 2004. "Terrorism-induced structural shifts in financial risk: airline stocks in the aftermath of the September 11th terror attacks," European Journal of Political Economy, Elsevier, vol. 20(2), pages 435-446, June.
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    7. Konstantinos Drakos & Ali M. Kutan, 2003. "Regional Effects of Terrorism on Tourism in Three Mediterranean Countries," Journal of Conflict Resolution, Peace Science Society (International), vol. 47(5), pages 621-641, October.
    8. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
    9. José de Sousa & Daniel Mirza & Thierry Verdier, 2009. "Trade and the Spillovers of Transnational Terrorism," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(IV), pages 453-461, December.
    10. Chen, Andrew H. & Siems, Thomas F., 2004. "The effects of terrorism on global capital markets," European Journal of Political Economy, Elsevier, vol. 20(2), pages 349-366, June.
    11. Martina Lawless, 2010. "Deconstructing gravity: trade costs and extensive and intensive margins," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1149-1172, November.
    12. Eckstein, Zvi & Tsiddon, Daniel, 2004. "Macroeconomic consequences of terror: theory and the case of Israel," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 971-1002, July.
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    14. Khusrav Gaibulloev & Todd Sandler & Charlinda Santifort, 2012. "Assessing the Evolving Threat of Terrorism," Global Policy, London School of Economics and Political Science, vol. 3(2), pages 135-144, May.
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    16. 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.
    17. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    18. Khusrav Gaibulloev & Todd Sandler, 2008. "Growth Consequences of Terrorism in Western Europe," Kyklos, Wiley Blackwell, vol. 61(3), pages 411-424, August.
    19. Enders, Walter & Sandler, Todd, 1996. "Terrorism and Foreign Direct Investment in Spain and Greece," Kyklos, Wiley Blackwell, vol. 49(3), pages 331-352.
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    Cited by:

    1. Khusrav Gaibulloev & Javed Younas, 2016. "Conflicts and domestic bank lending," Public Choice, Springer, vol. 169(3), pages 315-331, December.

    More about this item

    Keywords

    International trade; domestic and transnational terrorism; imports and exports; gravity model;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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