The Effect of Terrorist Incidents on Capital Flows |
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| Authors: | Randall K. Filer Dragana Stanišić |
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| Affiliation: | 1. Department of Economics, Hunter College and the Graduate Center, CUNY, New York, NY, USA;2. CERGE‐EI, IZA and CESifo;3. CERGE‐EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences, Prague, Czech Republic |
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| Abstract: | Previous work has shown that terrorism has significant negative impact on countries' economies. We explore this relationship in more detail. Using an unbalanced panel of more than 160 countries for up to 25 years and the Global Terrorism Database (GTD) we show a decrease in foreign direct investment (FDI) as a consequence of terrorism. We also find evidence that FDI flows are more sensitive to terrorism than either portfolio investments or external debt flows. Finally, we test the hypothesis that terrorism has negative spill‐over effects on FDI flows into neighboring countries and find evidence that cultural, but not geographical, closeness matters. |
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