Working Paper

Trade and Terrorism: A Disaggregated Approach

Abstract: This paper constructs a model of trade consequences of terrorism, where firms in trading nations face different costs arising from domestic and transnational terrorism. Using dyadic dataset in a gravity model, we test terrorism?s effects on overall trade, exports, and imports, while allowing for disaggregation by primary commodities and manufacturing goods. While terrorism has little or no influence on trade of primary products, terrorism reduces trade of manufactured goods. This novel finding pinpoints the avenue by which terrorism harms trade and suggests why previous studies that looked at all trade found modest impacts. Moreover, the detrimental effect of transnational terrorism on total manufactured trade, exports, and imports as well as on various classes of manufactured trade is substantially larger than that of domestic terrorism. Generally, this adverse impact is more pronounced for imports than for exports.

Keywords: International trade; domestic and transnational terrorism; imports and exports; gravity model;

JEL Classification: D74; F14; H56;

https://doi.org/10.20955/wp.2016.001

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2017-01-30

Number: 2016-1

Pages: 40 pages