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Terrorism, Trade and Welfare: Some Paradoxes and a Policy Conundrum

We present a standard trade model and show that terrorism can be trade inducing, starting from autarky. In addition, terrorism can be shown to be welfare augmenting for a group of nations. Finally, we present some qualitative conditions that identify when a nation’s trade volume may rise (or fall) in response to a greater incidence of terrorism. Our trade and welfare results point to potential difficulties in international coordination of counterterrorism policy because of terrorism’s differential impact across nations.

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DOI: 10.20955/wp.2016.002

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