Does terrorism hamper FDI inflows? A pre and post 9/11 analysis

Abstract

Purpose

This research intends to determine the role of terrorism in defying foreign direct investment (FDI) in top terror effected economies.

Design/methodology/approach

Panel data on FDI and terrorism from top terror effected economies spanning from 1987 to 2018 were used and the relationship for whole sample was investigated. Later the sample period was divided into pre (1987–2001) and post 9/11 (2002–2018) subsample and same relationship was tested to investigate the normalization of terror effect on FDI. The method of Pooled Mean Group (PMG) was used to test the hypothesis.

Findings

The results showed a negative but statistically insignificant impact of terrorism on the FDI inflows in the long run. Later the sample period was divided into pre (1987–2001) and post 9/11 (2002–2018) subsample. The empirical estimates for pre and post 9/11 periods indicated a negative and statistically significant relationship between terrorism and FDI for pre 9/11 period, and a negative but statistically insignificant relationship between the two variables for post 9/11 period.

Originality/value

The findings suggest several important policy implications for the terror affected countries and are further discussed in the study.

Citation

Arif, I., Rawat, A.S. and Khan, L. (2021), "Does terrorism hamper FDI inflows? A pre and post 9/11 analysis", Journal of Economic Studies, Vol. 48 No. 5, pp. 968-980. https://doi.org/10.1108/JES-12-2019-0571