Direct Effect of Terrorism on Economic Growth

Abstract

The objective of this article is to study the effect of terrorism on economic growth and the transmission mechanisms of this effect. To do this, a simultaneous equation model was applied to panel data for a sample of 31 countries (18 developing and 13 developed). The results of this study show the following: Terrorism has a significant negative impact on economic growth in the case of the entire sample; Unemployment also has a significant negative effect on economic growth in the case of the entire sample; Investment and FDI have positive and significant effects on economic growth in the case of the entire sample; For developed countries, we see that terrorism has no significant effect on economic growth;  FDI had a positive and significant impact on economic growth in the case of developed countries; Unlike the case of developing countries, we note that terrorism has a positive and significant impact on economic growth; Unemployment, investment and FDI have a positive and significant impact on economic growth in the case of developing countries. It can be said that terrorism threatens fragile economies more and poses no problem in advanced economies.