Terrorism, Trade, and Welfare
12 Pages Posted: 6 Jul 2017 Last revised: 17 Jul 2019
Date Written: 2017
For a standard competitive trade model, the authors show that the incidence of terrorism in different nations can affect the pattern of trade. Nations with a greater incidence of terrorism will export goods that are more immune to terrorism-related disruptions, while importing more terrorism-impacted goods. In addition, terrorism can be welfare augmenting for some nations because of terms-of-trade externalities. Finally, the authors present some qualitative conditions that identify when a nationâ€™s trade volume may rise (or fall) in response to a greater incidence of terrorism. Given the differential impact across nations, these trade and welfare results point to potential difficulties in international coordination of counterterrorism policy.
JEL Classification: F11, F52, H56
Suggested Citation: Suggested Citation