CEPII, Recherche et Expertise sur l'economie mondiale
Terrorism Networks and Trade: Does the Neighor Hurt?

José de Sousa
Daniel Mirza
Thierry Verdier

 Highlights :

 Abstract :
We study the impact of transnational terrorism diffusion on security and trade. We set a simple theoretical model predicting that the closer a country to a source of terrorism, the higher the negative spillovers on its trade. The idea is that security measures, which impede trade, are directed both against the source country of terror and its neighbor countries where terrorism may diffuse. In contrast, we demonstrate that countries located far from terror could benefit from an increase in security by trading more. Taken to the test, we empirically document these predictions. We find (1) a direct negative impact of transnational terrorism on trade; (2) an indirect negative impact emanating from terrorism of neighbor countries; and (3) that trade is increasing with remoteness to terror. These results are robust to various definitions of the neighboring relationships among countries.

 Keywords : Terrorism | Trade | Security

 JEL : F12, F13
CEPII Working Paper
N°2010-04, March 2010

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 Fields of expertise

Trade & Globalization