Terrorism and the macroeconomy: Evidence from Pakistan

Mehmood, Sultan (2013): Terrorism and the macroeconomy: Evidence from Pakistan. Forthcoming in: Defense and Peace Economics

Abstract

Pakistan with highest number of terrorism related deaths of any country over the past decade, the number exceeding the total terrorism related deaths for both the European and North American continents, provides an ideal laboratory to study impact of terrorism on the macroeconomy (GTD, 2012). Quasi-Structural VAR, VECM, Impulse Response Functions and Granger-Causality tests on a sample that covers over 4500 terrorist incidents and consequent 10, 200 deaths [from 1973 to 2010] are employed to study the relationship between terrorism and the macroeconomy. One of the major advantages of the current methodology is that it not only enables one to circumvent the heterogeneity biases inherent in cross-country studies but it also allows distinguishing between short and long-run effects. It is documented that cumulatively terrorism has cost Pakistan around 33.02 % of its real national income i.e. terrorism costs Pakistan around 1 % of real GDP per capita growth every year.

• Item Type: MPRA Paper
• Language: English
• Keywords: terrorism, macroeconomy, developing country, Pakistan
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications; H - Public Economics > H1 - Structure and Scope of Government; H - Public Economics > H1 - Structure and Scope of Government > H12 - Crisis Management; H - Public Economics > H5 - National Government Expenditures and Related Policies > H56 - National Security and War; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies

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