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Third Quarter 2017, 
Vol. 99, No. 3
Posted 2017-07-05

Terrorism, Trade, and Welfare

by Subhayu Bandyopadhyay, Todd Sandler, and Javed Younas

For a standard competitive trade model, the authors show that the incidence of terrorism in different nations can affect the pattern of trade. Nations with a greater incidence of terrorism will export goods that are more immune to terrorism-related disruptions, while importing more terrorism-impacted goods. In addition, terrorism can be welfare augmenting for some nations because of terms-of-trade externalities. Finally, the authors present some qualitative conditions that identify when a nation’s trade volume may rise (or fall) in response to a greater incidence of terrorism. Given the differential impact across nations, these trade and welfare results point to potential difficulties in international coordination of counterterrorism policy.





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