Causality between terrorism and economic growth

Meierrieks, D., & Gries, T. (2013). Causality between terrorism and economic growth. Journal of Peace Research, 50(1), 91-104.

Keywords: economic growth, institutional capacity, macroeconomic resiliency, panel causality, terrorism (domestic + international)

Method: LSDV (dynamic, fixed effects), Granger causality

Meierrieks and Gries offer another take on the relationship between terrorism and economic growth. They do not attempt to measure the magnitude of the effect of terrorism on growth, or vice versa, but instead propose a number of tests to verify whether such a relationship exists.

The authors’ approach is refreshing in the sense that they account for the possibility of a two-way causality between terrorism and growth which is not expected to be constant neither across counties nor over time. They attribute the causal heterogeneity across space to differences between countries’ development levels, political system and institutional capacity. The variation over time is explained by ideological and geographical shifts. There is some criticism of previous studies which assumed that the relationship between terrorism and growth is constant over time. Overall, Meierrieks and Gries expect that due to the demise of left-wing terrorism, which was socio-economically motivated, the impact of growth on terrorism should be smaller for the post-Cold War period. Conversely, the effect of terrorism on growth should be larger for the post-Cold War times when terrorism shifted away from Western Europe to less economically resilient places.

Their analysis is carried on a large sample of 160 countries over the past four decades. The data on the number of terrorist attacks and victims is taken from GTD, thus it includes both domestic and international terrorist activity. Unfortunately, there is a drawback to this approach. The authors seem to miss the fact that the two types of terrorism are driven by different factors, this means that they may respond differently to economic growth. They also affect different economic agents, for instance international terrorism may affect foreign investors (or aid agencies) directly and thus discourage them from locating their activities in the country in question. The study includes a number of control variables which lead to a separation of several subsamples based on the level of development and regime type, growth performance, intensity of terrorism, political stability, and regional and cultural membership.

The empirical part of the study tests for Granger causality in dynamic models with fixed effects and tweaks it appropriately to examine the heterogeneous and two-directional relationship between terrorism and growth. The applied methodology is carefully described and intuition behind each of the tests is well explained. The authors show that the terrorism-growth relationship changed over time. During the Cold War, growth was Granger-causing terrorism, while in the post-1991 period terrorism was affecting growth. Both relationships are significant at one lag which, according to the authors, means that terrorists quickly adapt to economic changes and macroeconomic effects of terrorism are short lasting. The next exercise tests whether the relationship is homogenous across countries. As expected, countries differ in their economic susceptibility to terrorism and some states remain more resilient than others. Also, growth doesn’t uniformly cause terrorism across countries. Meierrieks and Gries dig deeper and attempt to establish which factors affect the growth-terrorism connection. Their main finding is that growth exerts casual effect on terrorism in poorer countries, regardless of the quality of political system. This is contrasted with the situation in more developed countries where terrorism may be driven by non-economic factors such as foreign policy, separatist conflicts and rapid modernization. When looking at the terrorism’s causality on growth, they conclude that non-democratic countries suffer adverse consequences while sound democracies do not experience negative effects of terrorism on growth. The difference is explained by the level of centralization of government and the way countries’ address population’s needs.

The authors follow on to divide countries by their geographical and cultural affiliation. An interesting finding is that the causation from growth to terrorism is only present in Latin America., while terrorism negatively affects growth only in Islamic and African states (post-Cold War). Most importantly, the causal relationship between terrorism and growth, and vice versa, is only present in countries with above average intensity of terrorism and those that experience episodes of civil war. Other countries seem to be economically resilient to terrorism.

To sum up, the paper’s goal is rather modest as it doesn’t seek to estimate the magnitude of the effect of growth on terrorism, and vice versa, but instead focuses on simply establishing whether there is any causal relationship between the two variables. In spite of an uncomplicated methodology it delivers insightful results and at the same time largely escapes modelling difficulties which plague many studies on the subject. Nonetheless, the authors should recognize the different nature of domestic and international terrorism. Perhaps this is something to look for in follow-up studies. 

No Good Deed Goes Unpunished: Refugees, Humanitarian Aid, and Terrorism

Choi, S. W., & Salehyan, I. (2013). No Good Deed Goes Unpunished: Refugees, Humanitarian Aid, and Terrorism. Conflict Management and Peace Science, 30(1), 53-75.

Keywords: humanitarian aid, refugees, domestic terrorism, international terrorism

Regression methods: negative binomial ML, logit, fixed effects, GEE

The authors look at the effects of hosting refugees on incidence of terrorism in the receiving countries. They base their considerations on the premise that although refugees are likely to be victims of violence themselves, they may also contribute to a spread of violence and instability in their host countries. A number of possible reasons why providing shelter to refugees may lead to terrorism are given. They include attempts to attack refugee camps by militants, ease of recruitment from within the refugee camps for insurgencies and terrorist campaigns, rise in anti-immigrant movements in the receiving country, increased aid resources may invite looters, and aid workers are easy targets of kidnappings for ransom.

The authors’ empirical strategy is based on a negative binomial model with the number of all, only domestic or only international terrorist attacks (or casualties) as a dependent variable. They take their data from what is considered to be one of the best data sources on terrorism – the Global Terrorism Database (GTD) – and its decomposition into domestic and international incidents by Enders, Sandler and Gaibulloev (2011). The key independent variable is a number of refugees that a country receives from other states. They add a bunch of the usual controls and the lagged dependent variable which adds a dynamic dimension to the model. To deal with the excessive zeros problem, they also employ a form of a logit model.

The paper presents a number of alternative model specifications and all of them indicate that counties which receive more refugees are more likely to suffer from both international and domestic terrorism. The results also hold when ITERATE data is used instead of GTD. In their robustness check, the authors introduce a terrorism hot spot variable which singles out countries that are located in a neighbourhood of states that experience over-average intensity of terrorism. The reasoning behind this move is that being in a bad neighbourhood can increase the number of refugees as well as country’s exposure to political violence through “non-refugee” shocks. Although being located in a terrorist hot spot turns out to contribute to the frequency of terrorism, it doesn’t remove the significance of the refugee variable. The results appear to be somewhat weaker in the developed OECD countries, but as the authors notice the distribution of refugees and structure of aid in those countries is likely to be different.

The penultimate section of the article is the weakest element of the study. The authors make an effort to analyze the link between humanitarian assistance and terrorism. However, they encounter data limitations and are able to illustrate only a relatively small number of cases for the post-1998 period. No formal analysis is applied and therefore the conclusion that “a large number of attacks are against aid workers and humanitarian supplies” is not backed by hard evidence.

The article is one of the early papers on the relationships between refugees and terrorism, it gives results that are immune to various model specifications and contributes to the literature on the causes of terrorism. It comes with results that are relevant for policy making and should be considered by governments when dealing with humanitarian crises, both in developing and developed countries. The issue of receiving refugees, and immigrants in a wider sense, is likely to be climbing up the governments’ agendas in developed countries. As the recent riots in the suburbs of Stockholm and earlier in Paris show authorities will have to come up with a more effective way of protecting and integrating new-comers with native societies.