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The Impact of Terrorism on the Defense Industry

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  • Claude Berrebi
  • Esteban F. Klor

Abstract

This paper analyzes the impact of terrorism on Israeli companies related to the defense, security or anti-terrorism industries, relative to its impact on the rest of the companies. The authors match every Israeli company to the American company with the closest expected return among all the companies that belong to the same industry and trade in the same market in order to isolate the effect of terrorism from other common industry shocks. The findings show that whereas terrorism had a significant negative impact of 5% on non defense-related companies, it had a significantly positive overall effect of 7% on defense-related companies.

Suggested Citation

  • Claude Berrebi & Esteban F. Klor, 2008. "The Impact of Terrorism on the Defense Industry," Working Papers 597, RAND Corporation.
  • Handle: RePEc:ran:wpaper:597
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    Cited by:

    1. repec:eee:finsta:v:33:y:2017:i:c:p:120-132 is not listed on IDEAS
    2. Christian Dustmann & Francesco Fasani & Biagio Speciale, 2017. "Illegal Migration and Consumption Behavior of Immigrant Households," Journal of the European Economic Association, European Economic Association, pages 654-691.
    3. repec:eee:quaeco:v:65:y:2017:i:c:p:276-284 is not listed on IDEAS
    4. Caruso Raul & Klor Esteban F., 2012. "Political Economy Studies on the Israeli-Palestinian Conflict: Introduction," Peace Economics, Peace Science, and Public Policy, De Gruyter, pages 1-10.
    5. Efobi, Uchenna & Asongu, Simplice, 2016. "Terrorism and capital flight from Africa," International Economics, Elsevier, pages 81-94.
    6. Lahiri, Abhinaba & Peters, Hans & Storcken, Ton, 2017. "Strategy-proof location of public bads in a two-country model," Mathematical Social Sciences, Elsevier, pages 150-159.
    7. Abadie, Alberto & Dermisi, Sofia, 2008. "Is terrorism eroding agglomeration economies in Central Business Districts? Lessons from the office real estate market in downtown Chicago," Journal of Urban Economics, Elsevier, pages 451-463.
    8. Gul, Tayyeba Gul & Hussain, Anwar Hussain & Bangash, Shafiqullah Bangash & Khattak, Sanam Waghma Khattak, 2010. "Impact of Terrorism on Financial Markets of Pakistan (2006-2008)," MPRA Paper 41990, University Library of Munich, Germany.
    9. Krieger, Tim & Meierreiks, Daniel, 2015. "Does income inequality lead to terrorism? Evidence from the post-9/11 era," Discussion Paper Series 2015-04, University of Freiburg, Wilfried Guth Endowed Chair for Constitutional Political Economy and Competition Policy.
    10. Adam Nowak & Juan Sayago-Gomez, 2017. "Homeowner Preferences after September 11th, a Microdata Approach," Working Papers 17-03, Department of Economics, West Virginia University.
    11. Krisztina Kis-Katos & Helge Liebert & Günther G. Schulze, 2010. "On the Origin of Domestic and International Terrorism," Discussion Paper Series 12, Department of International Economic Policy, University of Freiburg, revised May 2010.
    12. J. W.B. Bos & M. Frömmel & M. Lamers, 2013. "FDI, Terrorism and the Availability Heuristic for U.S. Investors before and after 9/11," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 13/850, Ghent University, Faculty of Economics and Business Administration.
    13. Uchenna EFOBI & Simplice Asongu, 2015. "How Terrorism Explains Capital Flight from Africa," Working Papers 15/034, African Governance and Development Institute..
    14. Al-Ississ Mohamad, 2015. "The Cross-Border Impact of Political Violence," Peace Economics, Peace Science, and Public Policy, De Gruyter, pages 239-272.
    15. Aviad Tur-Sinai, 2014. "Adaptation patterns and consumer behavior as a dependency on terror," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 13(2), pages 257-269, November.
    16. Efraim Benmelech & Claude Berrebi & Esteban F. Klor, 2010. "The Economic Cost of Harboring Terrorism," Journal of Conflict Resolution, Peace Science Society (International), pages 331-353.
    17. repec:eee:juecon:v:99:y:2017:i:c:p:136-147 is not listed on IDEAS
    18. Claude Berrebi & Hanan Yonah, 2016. "Terrorism and philanthropy: the effect of terror attacks on the scope of giving by individuals and households," Public Choice, Springer, vol. 169(3), pages 171-194, December.
    19. Efraim Benmelech & Claude Berrebi & Esteban F. Klor, 2010. "The Economic Cost of Harboring Terrorism," Journal of Conflict Resolution, Peace Science Society (International), pages 331-353.
    20. Ben Bassat Avi & Dahan Momi & Geys Benny & Klor Esteban F., 2012. "The Impact of the Economic Costs of Conflict on Individuals' Political Attitudes," Peace Economics, Peace Science, and Public Policy, De Gruyter, pages 1-29.
    21. Kis-Katos, Krisztina & Liebert, Helge & Schulze, Günther G., 2011. "On the origin of domestic and international terrorism," European Journal of Political Economy, Elsevier, pages 17-36.
    22. Adam Nowak & Juan Sayago-Gomez, 2017. "Homeowner Preferences after September 11th, a Microdata Approach," Working Papers 17-17, Department of Economics, West Virginia University.
    23. Gupta, Rangan & Majumdar, Anandamayee & Pierdzioch, Christian & Wohar, Mark E., 2017. "Do terror attacks predict gold returns? Evidence from a quantile-predictive-regression approach," The Quarterly Review of Economics and Finance, Elsevier, pages 276-284.
    24. Michel-Kerjan, Erwann & Raschky, Paul A., 2011. "The effects of government intervention on the market for corporate terrorism insurance," European Journal of Political Economy, Elsevier, pages 122-132.

    More about this item

    Keywords

    terror; defense sector; financial markets;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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