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Terrorism limits economic openness

According to Daniel Meierrieks and Friedrich Schneider, terrorism can be understood as a violent contest between a terrorist organization and a government it challenges. Terrorist organizations use violence to extract political concessions from a besieged government, while the government implements specific polices to make such concessions less likely. In their study, the researchers focus on the effect of terrorism on a country’s level of de jure economic openness. Here, de jure openness refers to government policies and regulations that affect international trade (e.g., tariffs) and international capital movements (e.g., current account regulations). The results of a series of two-way fixed effects and instrumental-variable regressions show that governments implement more restrictive international economic policies (meaning lower levels of de jure economic openness) in response to terrorism.

The researchers argue that this shift in governmental policy with respect to economic openness is meant to strengthen the government’s position in its violent contest with terrorist organizations. In detail, less liberal economic policies (1) hamper the organization and financing of terrorism, making future attacks less likely, (2) reduce adverse economic effects from terrorism by inhibiting capital flight and stabilizing public finances and (3) signal political resolve, thus increasing the government’s chances of political survival. However, the authors also stress that less liberal economic policies, while potentially advantageous in the government’s fight against terrorism, may also have adverse economic consequences as economies tend to grow more strongly when the regulation of international trade and capital movements is comparatively low.

14.04.2021

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Photo Daniel Meierrieks
Martina Sander-Blanck

Daniel Meierrieks is a Research Fellow of the Research Group Migration, Integration, Transnationalization with a focus on immigration, international migration, terrorism and political violence as well as development economics.

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Bild des Wissenschaftlers Friedrich Schneider in grauem Anzug mit blauer Krawatte
Johannes Kepler Universität Linz

Friedrich Schneider is Professor emeritus at the Research Institute of Banking at the Johannes Kepler University Linz. His research interests focus on public choice, finance, tax evasion, the shadow economy, organized crime and environmental and resource economics.

Daniel Meierrieks and Friedrich Schneider (2021): Terrorism and international economic policy.  European Journal of Political Economy.