The Effects of Terror on International Air Passenger Transport: An Empirical Investigation

56 Pages Posted: 2 Feb 2017 Last revised: 5 Jan 2019

See all articles by Devashish Mitra

Devashish Mitra

Syracuse University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Cong Si Pham

Deakin University - School of Accounting, Economics and Finance

Subhayu Bandyopadhyay

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

Date Written: 2017-02-01

Abstract

This paper presents a theoretical model (adapted from the structural gravity model by Anderson and van Wincoop, 2003) to capture the effects of terrorism on air passenger traffic between nations affected by terrorism. We then use equations derived from this model, in conjunction with alternative functional forms for trade costs, to estimate the effects of terrorism on bilateral air passenger flows from 57 source countries to 25 destination countries for the period of 2000 to 2014. We find that an additional terrorist incident results in approximately a 1.2% decrease in the bilateral air passenger transport per unit distance while doubling of the accumulated terrorist incidents during the past 5 years reduces it by 18%. Terrorism adversely impacts the bilateral air passenger transport per unit distance both by reducing national output and especially by increasing psychological distress, which could be an important contributing factor in perceived travel costs. Last but not the least, we show that the responsiveness of international air travel to terrorism critically depends on the nature of the terrorist attacks. Specifically, international air passenger transport is found to be extremely sensitive to fatal terrorist attacks and terrorist attacks of targets such as airports, transportation or tourists.

Keywords: air passengers, airline industry, gravity equation, international trade, terrorism

JEL Classification: F1, F14, L93

Suggested Citation

Mitra, Devashish and Pham, Cong Si and Bandyopadhyay, Subhayu, The Effects of Terror on International Air Passenger Transport: An Empirical Investigation (2017-02-01). FRB St. Louis Working Paper No. 2017-2. Available at SSRN: https://ssrn.com/abstract=2910290 or http://dx.doi.org/10.20955/wp.2017.002

Devashish Mitra (Contact Author)

Syracuse University - Department of Economics ( email )

The Maxwell School of Citizenship & Public Affairs
133 Eggers Hall
Syracuse, NY 13244-1020
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

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

Cong Si Pham

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Subhayu Bandyopadhyay

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)

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