IDEAS home Printed from https://ideas.repec.org/p/hal/wpcatt/hal-01885149.html
   My bibliography  Save this paper

Foreign Financial Flows and Terrorism In Developing Countries

Author

Listed:
  • 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 of CATT hal-01885149, HAL.
    • Handle: RePEc:hal:wpcatt:hal-01885149
    Note: View the original document on HAL open archive server: https://hal-univ-pau.archives-ouvertes.fr/hal-01885149
    as

    Download full text from publisher

    File URL: https://hal-univ-pau.archives-ouvertes.fr/hal-01885149/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Abadie, Alberto & Gardeazabal, Javier, 2008. "Terrorism and the world economy," European Economic Review, Elsevier, vol. 52(1), pages 1-27, January.
    3. Gupta, Sanjeev & Clements, Benedict & Bhattacharya, Rina & Chakravarti, Shamit, 2004. "Fiscal consequences of armed conflict and terrorism in low- and middle-income countries," European Journal of Political Economy, Elsevier, vol. 20(2), pages 403-421, June.
    4. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2007. "Calculating Tragedy: Assessing The Costs Of Terrorism," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 1-24, February.
    5. Oda, Hisaya, 2009. "Pakistani Migration to the United States:An Economic Perspective," IDE Discussion Papers 196, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    6. 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.
    7. 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.
    8. Mazhar Y. Mughal, 2013. "Remittances As Development Strategy: Stepping Stones Or Slippery Slope?," Journal of International Development, John Wiley & Sons, Ltd., vol. 25(4), pages 583-595, May.
    9. Dreher, Axel & Krieger, Tim & Meierrieks, Daniel, 2011. "Hit and (they will) run: The impact of terrorism on migration," Economics Letters, Elsevier, vol. 113(1), pages 42-46, October.
    10. Khusrav Gaibulloev & Todd Sandler, 2008. "Growth Consequences of Terrorism in Western Europe," Kyklos, Wiley Blackwell, vol. 61(3), pages 411-424, August.
    11. Mehmet Yaya, 2009. "Terrorism And Tourism: The Case Of Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 20(6), pages 477-497.
    12. 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.
    13. repec:bla:kyklos:v:49:y:1996:i:3:p:331-52 is not listed on IDEAS
    14. 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.
    15. Blomberg, S. Brock & Hess, Gregory D. & Orphanides, Athanasios, 2004. "The macroeconomic consequences of terrorism," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 1007-1032, July.
    16. Walter Enders & Todd Sandler, 1996. "Terrorism and Foreign Direct Investment in Spain and Greece," Kyklos, Wiley Blackwell, vol. 49(3), pages 331-352, August.
    17. 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.
    18. Sultan Mehmood, 2014. "Terrorism and the macroeconomy: Evidence from Pakistan," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(5), pages 509-534, October.
    19. 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.
    20. Amar Iqbal Anwar & Mazhar Yaseen Mughal, 2012. "Motives to remit: some microeconomic evidence from Pakistan," Economics Bulletin, AccessEcon, vol. 32(1), pages 574-585.
    21. Eldor, Rafi & Melnick, Rafi, 2004. "Financial markets and terrorism," European Journal of Political Economy, Elsevier, vol. 20(2), pages 367-386, June.
    22. Michele Fratianni & Heejoon Kang, 2006. "International Terrorism, International Trade, and Borders," Working Papers 2006-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    23. Peter Kurrild-Klitgaard & Mogens Justesen & Robert Klemmensen, 2006. "The political economy of freedom, democracy and transnational terrorism," Public Choice, Springer, vol. 128(1), pages 289-315, July.
    24. Junaid Ahmed, 2012. "Cyclical Properties of Migrant's Remittances to Pakistan: What the data tell us," Economics Bulletin, AccessEcon, vol. 32(4), pages 3266-3278.
    25. repec:bla:kyklos:v:45:y:1992:i:4:p:531-54 is not listed on IDEAS
    26. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-918, October.
    27. Rafael Llorca-Vivero, 2008. "Terrorism And International Tourism: New Evidence," Defence and Peace Economics, Taylor & Francis Journals, vol. 19(2), pages 169-188.
    28. Jørgen Carling & Marta Bivand Erdal & Cindy Horst, 2012. "How does Conflict in Migrants’ Country of Origin Affect Remittance-Sending? Financial Priorities and Transnational Obligations Among Somalis and Pakistanis in Norway," International Migration Review, Wiley Blackwell, vol. 46(2), pages 283-309, June.
    29. Mazhar Yasin mughal & Farid Makhlouf, 2011. "Volatility of Remittances to Pakistan: What do the Data Tell?," Economics Bulletin, AccessEcon, vol. 31(1), pages 605-612.
    30. Walter Enders & Todd Sandler & Gerald F. Parise, 1992. "An Econometric Analysis of the Impact of Terrorism on Tourism," Kyklos, Wiley Blackwell, vol. 45(4), pages 531-554, November.
    31. Catalina Amuedo-Dorantes & Susan Pozo, 2006. "Remittances as insurance: evidence from Mexican immigrants," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(2), pages 227-254, June.
    32. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Amar Iqbal Anwar & Mazhar Mughal, 2013. "Foreign Financial Flows and Terrorism In Developing Countries," Working Papers hal-01885149, HAL.
    2. Friedrich Schneider & Tilman Brück & Daniel Meierrieks, 2010. "The Economics of Terrorism and Counter-Terrorism: A Survey (Part II)," Discussion Papers of DIW Berlin 1050, DIW Berlin, German Institute for Economic Research.
    3. Freytag, Andreas & Krüger, Jens J. & Meierrieks, Daniel & Schneider, Friedrich, 2011. "The origins of terrorism: Cross-country estimates of socio-economic determinants of terrorism," European Journal of Political Economy, Elsevier, vol. 27(S1), pages 5-16.
    4. Thomas Gries & Tim Krieger & Daniel Meierrieks, 2011. "Causal Linkages Between Domestic Terrorism and Economic Growth," Defence and Peace Economics, Taylor & Francis Journals, vol. 22(5), pages 493-508, June.
    5. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2007. "Calculating Tragedy: Assessing The Costs Of Terrorism," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 1-24, February.
    6. Haider, Murtaza & Anwar, Amar, 2014. "Impact of terrorism on FDI flows to Pakistan," MPRA Paper 57165, University Library of Munich, Germany.
    7. Peter Egger & Martin Gassebner, 2015. "International terrorism as a trade impediment?," Oxford Economic Papers, Oxford University Press, vol. 67(1), pages 42-62.
    8. Fırat Bilgel & Burhan Can Karahasan, 2017. "The Economic Costs of Separatist Terrorism in Turkey," Journal of Conflict Resolution, Peace Science Society (International), vol. 61(2), pages 457-479, February.
    9. Shahbaz, Muhammad & Shabbir, Muhammad Shahbaz & Malik, Muhammad Nasir & Wolters, Mark Edward, 2013. "An analysis of a causal relationship between economic growth and terrorism in Pakistan," Economic Modelling, Elsevier, vol. 35(C), pages 21-29.
    10. Subhayu Bandyopadhyay & Todd Sandler & Javed Younas, 2018. "Trade and terrorism," Journal of Peace Research, Peace Research Institute Oslo, vol. 55(5), pages 656-670, September.
    11. Khusrav Gaibulloev & Gerel Oyun & Javed Younas, 2019. "Terrorism and subjective financial well-being: micro-level evidence from Pakistan," Public Choice, Springer, vol. 178(3), pages 493-512, March.
    12. Ali M. Kutan & Mehmet E. Yaya, 2016. "Armed conflict and financial and economic risk: evidence from Colombia," Risk Management, Palgrave Macmillan, vol. 18(2), pages 159-187, August.
    13. Subhayu Bandyopadhyay & Todd Sandler & Javed Younas, 2016. "Trade and Terrorism: A Disaggregated Approach," Working Papers 2016-1, Federal Reserve Bank of St. Louis.
    14. Sultan Mehmood, 2014. "Terrorism and the macroeconomy: Evidence from Pakistan," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(5), pages 509-534, October.
    15. Khusrav Gaibulloev, 2008. "The Impact of Terrorism and Conflicts on Growth in Asia, 1970–2004," Working Papers id:1789, eSocialSciences.
    16. Luca Salvadori, 2015. "Does tax enforcement counteract the negative effects of terrorism? A case study of the Basque country," ERSA conference papers ersa15p1465, European Regional Science Association.
    17. Iatridis, George, 2012. "Terrorist attacks and company financial numbers: Evidence on earnings management and value relevance from Madrid, London and Istanbul," Research in International Business and Finance, Elsevier, vol. 26(2), pages 204-220.
    18. Kollias, Christos & Papadamou, Stephanos & Stagiannis, Apostolos, 2011. "Terrorism and capital markets: The effects of the Madrid and London bomb attacks," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 532-541, October.
    19. Muhammad, Shahbaz & Muhammad, Nasir Malik & Muhammad, Shahbaz Shabbir, 2011. "Does economic growth cause terrorism in Pakistan?," MPRA Paper 35101, University Library of Munich, Germany, revised 30 Nov 2011.
    20. Llussá, Fernanda & Tavares, José, 2011. "Which terror at which cost? On the economic consequences of terrorist attacks," Economics Letters, Elsevier, vol. 110(1), pages 52-55, January.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpcatt:hal-01885149. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CATT - UPPA - Université de Pau et des Pays de l'Adour (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.