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The interplay between preemptive and defensive counterterrorism measures: a two-stage game
A two-stage game depiction of counterterrorism is presented, where the emphasis is on the interaction between the preemptive and defensive measures taken by two targeted countries facing a common threat. The preemptor is likely to be the high-cost defender with the greater foreign interests. A prime-target country may also assume the preemptor role. The analysis identifies key factors - cost comparisons, foreign interests, and targeting risks - that determine counterterrorism allocations. The study shows that the market failures associated with preemptive and defensive countermeasures may be ...
Counterterrorism Policy: Spillovers, Regime Stability, and Corner Solutions
This paper takes a unique approach to the scenario where a resident terrorist group in a (fragile) developing nation poses a terrorism threat at home and abroad. The host developing nation’s proactive countermeasures against the resident terrorist group not only limits terrorism at home and abroad, but also bolsters regime stability at home. A two-stage game is presented in which the developed country takes a leadership role to institute a tax-subsidy combination to discourage (encourage) proactive measures at home (abroad) in stage 1. Stage 2 involves both nations’ counterterrorism ...
Immigration policy and counterterrorism
A terrorist group, based in a developing (host) country, draws unskilled and skilled labor from the productive sector to conduct attacks at home and abroad. The host nation chooses proactive countermeasures, while accounting for the terrorist campaign. Moreover, a targeted developed nation decides its optimal mix of immigration quotas and defensive counterterrorism actions. Even though proactive measures in the host country may not curb terrorism at home, it may still be advantageous in terms of national income. Increases in the unskilled immigration quota augment terrorism against the ...
Foreign direct investment, aid, and terrorism: an analysis of developing countries
Using a dynamic panel data framework, we investigate the relationship between the two major forms of terrorism and foreign direct investment (FDI). We then analyze how these relationships are affected by foreign aid flows. The analysis focuses on 78 developing countries for 1984- 2008. Our findings suggest that all types of terrorism depress FDI. In addition, aid mitigates the negative effects of total and domestic terrorism on FDI; however, this is not the case for transnational terrorism. This finding highlights that different forms of terrorism call for tailoring mitigating strategies. ...
Terrorism, Trade, and Welfare
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 ...
The effects of terrorism on trade: a factor supply approach
The conventional view of terrorism is that it raises risks and, as a result, reduces trade. The authors use a factor supply approach to show that this hypothesis is not necessarily correct. They use a two-good, two-factor, small open economy model to show that terrorism can either reduce or raise trade depending on critical factors, such as the impact of terrorism on the intensive factor of the export or the import sector. They then extend the analysis to models with several goods and factors and identify conditions under which trade may rise or fall with a greater incidence of terrorism. ...
Terms-of-Trade and Counterterrorism Externalities
This paper investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation?s defensive counterterrorism efforts, while transferring some of its attacks abroad. Terms-of-trade considerations lead the developed nation to raise its counterterrorism level beyond the ?small-country? level, thus compounding its over provision of these measures. By contrast, the developing ...
Terrorism, Trade and Welfare: Some Paradoxes and a Policy Conundrum
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.
Trade and Terrorism: A Disaggregated Approach
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 ...
Foreign aid as counterterrorism policy
We present a model where foreign aid bolsters proactive counterterrorism efforts of a foreign nation that is a source for transnational terrorism. Our two-stage game has the donor country choosing a first-stage contract consisting of terrorism-fighting tied aid and general assistance. In stage 2, the donor decides its defensive measures, while the recipient country chooses its proactive measures. An interesting finding is that the foreign enforcement best-response function is likely to reflect strategic substitutes, while the donor's enforcement best-response function is apt to indicate ...