Fed in Print

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.

Subhayu Bandyopadhyay & Todd Sandler & Javed Younas, "Terrorism, Trade, and Welfare" , Federal Reserve Bank of St. Louis, Review, volume 99, issue 3, pages 295-306, 2017.

JEL Classification:

F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

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