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The Effect of Terrorist Incidents on Capital Flows
Author(s) -
Filer Randall K.,
Stanišić Dragana
Publication year - 2016
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12246
Subject(s) - terrorism , foreign direct investment , closeness , economics , portfolio , portfolio investment , panel data , work (physics) , capital (architecture) , monetary economics , international economics , macroeconomics , financial economics , political science , econometrics , geography , archaeology , law , mechanical engineering , mathematical analysis , mathematics , engineering
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.