Terrorism, Trade and Welfare: Some Paradoxes and a Policy Conundrum

Bandyopadhyay, Subhayu; Sandler, Todd; Younas, Javed

doi:10.20955/wp.2016.002

Working Paper

Terrorism, Trade and Welfare: Some Paradoxes and a Policy Conundrum

Abstract: We present a standard trade model and show that terrorism can be trade inducing, starting from autarky. In addition, terrorism can be shown to be welfare augmenting for a group of nations. Finally, we present some qualitative conditions that identify when a nation?s trade volume may rise (or fall) in response to a greater incidence of terrorism. Our trade and welfare results point to potential difficulties in international coordination of counterterrorism policy because of terrorism?s differential impact across nations.

Keywords: Terrorism; Trade; Welfare;

JEL Classification: F11; F52; H56;

https://doi.org/10.20955/wp.2016.002