econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 19 December 2016

How Does Terrorism Affect Trade?

from the St Louis Fed

-- this post authored by Subhayu Bandyopadhyay

A major current threat to the U.S. and the global economy is terrorism. In their 2012 book The Political Economy of Terrorism, economists Walter Enders and Todd Sandler define “terrorism" as premeditated use of or threat to use violence by individuals or subnational groups to obtain a political or social objective through the intimidation of a large audience beyond that of the immediate victims.1

Among other effects, such threats reduce investments in affected nations and impact both capital formation and employment. To gain international attention to their activities, terrorists often disproportionately target tourism, transportation or foreign direct investment (FDI). In turn, this affects a targeted nation’s exports and imports.

How Does Terrorism Affect Trade?

There are a few central channels through which terrorism may affect trade:

  • Terrorism increases uncertainty, which raises the cost of traded goods, especially relative to similar goods produced in a terrorism-free country.

  • Terrorism increases the cost of doing business by raising both insurance premiums and security costs, which decreases the competitiveness of goods.

  • Terrorism slows the flow of goods and resources through ports due to greater inspections and safeguards.

  • Trade can be reduced as purchasing power drops from loss of income when production is disrupted.

  • Terrorism can divert government expenditures from more productive public investment to less productive security activities.

Types of Terrorism and Their Sectoral Effects

Terrorism is composed of two parts: domestic and transnational.

  • In domestic terrorism, the perpetrators and victims are all citizens from the venue country. An example is the April 19, 1995, bombing of the Alfred P. Murrah Federal Building in Oklahoma City by Timothy McVeigh.

  • Transnational terrorism occurs when the venue, perpetrators or victims involve two or more countries.

My recent paper, co-authored with Todd Sandler and Javed Younas, looked into the effects of total, domestic and transnational terrorism on international trade.2 We found that the manufacturing sector experienced the greatest harm from terrorism. Within manufacturing, we found that effects of terrorism were more damaging to high-skilled production than low-skilled production.

Generally, the detrimental effect of transnational terrorism on various trade variables was almost double that of domestic terrorism, indicating that transaction cost and other considerations associated with transnational terrorism were more trade-inhibiting than those tied to domestic terrorism.

Furthermore, the contrasting effects of the two forms of terrorism were more pronounced for developing countries, which may be less able than their developed counterparts to alleviate transnational terrorism and its consequences due to weaker institutions.

Total terrorism had a significant negative impact on trade in all products, primary commodities and manufactured goods, with a stronger detrimental influence manifested on manufacturing.

When manufacturing sectors were decomposed by resource or skill intensities, transnational terrorism continued to have a more marked effect on trade than domestic terrorism. There was a noteworthy tendency for higher-skilled manufacturing to sustain a more adverse trade impact from alternative forms of terrorism, with some peaking at a skill level below the greatest.

Notes and References

1 Enders, Walter; and Sandler, Todd. The Political Economy of Terrorism, 2nd Edition, New York, Cambridge University Press, 2012.

2 Bandyopadhyay, Subhayu; Sandler, Todd; and Younas, Javed. “Trade and Terrorism: A Disaggregated Approach." Working Paper No. 2016-001A, Federal Reserve Bank of St. Louis, February 2016.

Additional Resources

Source

https://www.stlouisfed.org/on-the-economy/2016/december/how-terrorism-affect-trade

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Minsky’s Theory of Asset Prices: Why Minsky Was NOT a Neo-Monetarist
The BuildZoom And Urban Economics Lab Index: Third Quarter 2016
News Blog
January 2017 Philly Fed Manufacturing Survey Significantly Improves and Remains In Expansion.
December 2016 Residential Building Sector Mixed
14 January 2017 Initial Unemployment Claims Rolling Average Improvement Continues
Stock Market Bull Faces Important Test
Infographic Of The Day: Movies That Struck Oil
Early Headlines: Asia Stocks Mixed, Dollar Steady, Oil Up, Top US Poll Priority Is Health Care, Tough Questions For Tom Price, Russia Has Buyer's Remorse, Mexico Fears Trump And More
Documentary Of The Week: Value And Thermodynamics
Can Serena Make It 23
Number Of Bitcoin ATMs By Country
How Old Is Our Moon?
Advantages And Disadvantages Of The EU According To Business Leaders
What We Read Today 18 January 2017
January 2017 Beige Book: Reading Between The Lines - Little Change in the Rate of Growth
Investing Blog
Technical Nuggets: Is There A Trump-Air Pocket Ahead?
Technical Thoughts: Three Trading Ideas
Opinion Blog
A New Deal With Capitalism Requires A Revolution In Politics And Markets
A Letter To Warren Buffett And Charlie Munger About Hiring Proven Whistleblowers
Precious Metals Blog
Four Catalysts Drive Gold And Silver For 2017
Live Markets
19Jan2017 Pre-Market Commentary: Wall Street To Open Flat, Building Permits Down, Philadelphia Fed Manufacturing Up, Jobless Claims Down
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved