Economic Impact of Terrorism on International Investment
Summary
Terrorism exerts a multifaceted influence on international investment by heightening perceived risk, raising the cost of capital and altering investor behaviour. Heightened threat levels prompt multinational enterprises to reassess country risk premia, often delaying or cancelling greenfield projects and divesting from higher-risk markets. Insurance and security expenditures rise, reducing net returns and reallocating resources towards compliance and risk management. Empirical evidence highlights sectoral heterogeneity: resource-intensive industries and tourism sectors display acute sensitivity to attack frequency, while certain service-oriented investments prove more resilient. Cross-border spillovers occur as investor caution radiates across neighbouring economies, amplifying regional investment shortfalls. Over time, persistent terrorism drives structural shifts in global capital allocation, with capital seeking safer havens and prompting host governments to prioritise counter-terrorism measures, governance reforms and incentives to reclaim investor confidence. Practical applications of this research inform policy design for stabilisation funds, targeted infrastructure development and risk-sharing mechanisms to revive investment flows in affected jurisdictions.
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Economic Impact of Terrorism on International Investment publication trend
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Technical terms
Foreign direct investment (FDI): cross-border investment by a firm to establish a lasting interest in a foreign enterprise, typically exceeding 10 per cent equity ownership.
Greenfield investment: type of FDI in which a parent company builds new operations from the ground up in a host country, creating new facilities and employment.
Spatial spillover effect: phenomenon where economic disturbances in one region influence investment flows and performance in neighbouring regions.
Granger causality: statistical approach to assess whether past values of one time series contain information that helps predict another series.
Political risk: likelihood that political events—such as terrorism, civil unrest or regulatory shifts—will adversely affect investment returns.
References
- Impact of political conflict on foreign direct investments in the mining sector: Evidence from the event study and spatial estimation. Journal of Environmental Management (2023).
- Terrorism and investment in Africa: Exploring the role of military expenditure. Economics and Business Review (2022).
- Causality between Terrorism and FDI in Tourism: Evidence from Panel Data. Economies (2019).
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