Terrorism, Trade, and Welfare

Bandyopadhyay, Subhayu; Sandler, Todd; Younas, Javed

doi:10.20955/r.2017.295-306

Journal Article

Terrorism, Trade, and Welfare

Abstract: For a standard competitive trade model, the authors show that the incidence of terrorism in different nations can affect the pattern of trade. Nations with a greater incidence of terrorism will export goods that are more immune to terrorism-related disruptions, while importing more terrorism-impacted goods. In addition, terrorism can be welfare augmenting for some nations because of terms-of-trade externalities. Finally, the authors present some qualitative conditions that identify when a nation?s trade volume may rise (or fall) in response to a greater incidence of terrorism. Given the differential impact across nations, these trade and welfare results point to potential difficulties in international coordination of counterterrorism policy.

JEL Classification: H56; F52; F11;

https://doi.org/10.20955/r.2017.295-306