International trade, security and transnational terrorism: Theory and a survey of empirics

In this paper, we offer a new and general analytical framework to illustrate the complex two-way interactions between trade and transnational terrorism. We then survey the recent economic literature in light of this framework by pointing to the importance in empirical studies of: (a) accounting for omitted variables that may be correlated with both terrorism and trade; (b) considering more seriously the intertemporal persistence of terrorism between specific pairs of countries as it affects GDP and GDP per capita regressors; (c) distinguishing the potential impact of incidents occurring in a particular country from the effects of incidents targeted towards or sourced in the country; and (d) most importantly, controlling appropriately for the potential endogeneity that prevails between terrorism, security measures and trade, very much ignored in the literature. Journal of Comparative Economics 36 (2) (2008) 179-194. CREM, France; University of Rennes 1, France; CNRS, France; CEPII, France; PSE, France; University of Southampton, UK; CEPR, London, UK. (c) 2007 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.