Trade and Terrorism: The Effects of Foreign Financial Interactions on Domestic Terror

Abstract

Effective counterterrorism requires a strong understanding of the root causes of terror and what sorts of policies might address these causes. This research employs country and time fixed panel analysis across the years 1970 to 2007 to investigate the effects of financial interactions -- such as trade, development assistance, and foreign direct investment -- on the frequency of terrorist attacks through the mechanism of globalization and its implications on political and social institutions. Because domestic terrorism can has spillover effects into transnational terror and because it is more straightforward to address, this analysis focuses solely on domestic terror events. Although the results of this inquiry are insignificant to identify a link between foreign financial interactions and changes in the rate of domestic terror, this research serves to make headway into an as yet relatively unexplored policy channel for addressing the problem of terrorism.