The Impact of Terrorism across Industries: An Empirical Study
RAND Corporation; Hebrew University - The Federmann School of Public Policy and Government; University of California, Los Angeles (UCLA) - Department of Economics; Princeton University - Department of Economics; RAND Corporation - Labor and Population Studies
Esteban F. Klor
Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. 5360
This paper uses scoring matching techniques and event study analysis to elucidate the impact of terrorism across different economic sectors. Using the Israeli-Palestinian conflict as a case study, we differentiate between Israeli companies that belong to the defense, security or anti-terrorism related industries and other companies. The findings show that whereas terrorism has a significant negative impact on non defense-related companies, the overall effect of terrorism on defense and security-related companies is significantly positive. Similarly, using panel data on countries' defense expenditures and imports from Israel, we find that terror fatalities in Israel have a positive effect on Israeli exports of defense products. These results suggest that the expectation of future high levels of terrorism has important implications for resource allocation across industries.
Number of Pages in PDF File: 40
Keywords: Terrorism, stocks returns, defense sector
JEL Classification: D74, G14, L64, P16
Date posted: January 26, 2006
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