Terrorism and Trade: An Empirical Investigation of Terrorism’s Effects on Exports

Abstract

This study supplements a vast field of empirical trade economics to analyze the effects of domestic terrorism on a country’s trade relationships, as modeled by their exports. I first survey the massive base of relevant literature, establishing a conceptual understanding of economic diplomacy and demonstrating its importance in the modern economy. Studying a data panel of more than 3,000 dyadic pairs, I employ an augmented Gravity Model in three variations to determine a multifaceted relationship between trade and terrorism. I demonstrate a negative and significant relationship between terrorist attacks and exports, consistent across all regression models. Additionally, I investigate the effects of membership in a trade union on implicit trade barriers, and determine that membership in the European Union mitigates some economic effects of terrorist attacks. Finally, I establish several avenues to continue my research, and discuss the extremely valuable policy implications this field may carry.