Trade and Terrorism: A Disaggregated Approach

40 Pages Posted: 25 Feb 2016 Last revised: 6 Mar 2019

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Todd M. Sandler

University of Texas at Dallas - School of Economic, Political and Policy Sciences, Department of Economics & Finance

Javed Younas

American University of Sharjah - Economics Department

Date Written: 2016-02-01

Abstract

This paper constructs a model of trade consequences of terrorism, where firms in trading nations face different costs arising from domestic and transnational terrorism. Using dyadic dataset in a gravity model, we test terrorism’s effects on overall trade, exports, and imports, while allowing for disaggregation by primary commodities and manufacturing goods. While terrorism has little or no influence on trade of primary products, terrorism reduces trade of manufactured goods. This novel finding pinpoints the avenue by which terrorism harms trade and suggests why previous studies that looked at all trade found modest impacts. Moreover, the detrimental effect of transnational terrorism on total manufactured trade, exports, and imports as well as on various classes of manufactured trade is substantially larger than that of domestic terrorism. Generally, this adverse impact is more pronounced for imports than for exports.

Keywords: International trade, domestic and transnational terrorism, imports and exports, gravity model

JEL Classification: D74, F14, H56

Suggested Citation

Bandyopadhyay, Subhayu and Sandler, Todd M. and Younas, Javed, Trade and Terrorism: A Disaggregated Approach (2016-02-01). FRB St. Louis Working Paper No. 2016-1. Available at SSRN: https://ssrn.com/abstract=2737808 or http://dx.doi.org/10.20955/wp.2016.001

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Todd M. Sandler

University of Texas at Dallas - School of Economic, Political and Policy Sciences, Department of Economics & Finance ( email )

Richardson, TX 75083
United States

Javed Younas

American University of Sharjah - Economics Department ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

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