Causal Linkages Between Domestic Terrorism and Economic Growth

We use the Hsiao-Granger method to test for growth-terrorism causality for seven Western European countries. In bivariate settings, the impact of economic performance on domestic terrorism is very strong. In trivariate settings, the impact of performance on terrorism diminishes. Here, we find that economic performance leads terrorist violence in robust ways only for three out of seven countries. Terrorism is almost never found to causally influence growth in bivariate and trivariate specifications. Our findings indicate that (i) the role of economic performance in determining terrorist violence appears to have been important for some countries and (ii) all attacked economies have been successful in adjusting to the threat of terrorism.