Abstract :
We perform an empirical investigation of the macroeconomic consequences of international
terrorism and interactions with alternative forms of collective violence.Our analysis is based
on a rich unbalanced panel data set with annual observations on 177 countries from 1968 to
2000, which brings together information from the Penn World Table data set, the ITERATE
data set for terrorist events, and data sets of external and internal conflict.We explore these
data with cross-sectional and panel growth regression analysis and a structural VAR model.
We find that, on average, the incidence of terrorism may have an economically significant
negative effect on growth, albeit one that is considerably smaller and less persistent than that
associated with either external wars or internal conflict.As well, terrorism is associated with a
redirection of economic activity away from investment spending and towards government
spending.However, our investigation also suggests important differences both regarding
the incidence and the economic consequences of terrorism among different sets of countries.In OECD economies, in particular, terrorist incidents are considerably more frequent than in
other nations, but the negative influence of these incidents on growth is smaller.
r 2004 Published by Elsevier B.V.
