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Dissertation Committee:
Randall K. Filer (chair)
Štěpán Jurajda (local chair)
Jitka Malečková
Teodora Paligorova
Evangelia Vourvachaki

Abstract:

Research in the field of terrorism is relatively new and has attracted researchers from different disciplines for only a short time. Economic literature studies both the causes and consequences of terrorism, and this thesis contributes to the literature addressing both of these aspects.The first two chapters focus on consequences of terrorist attacks on investments, while the third chapter addresses causes of terrorist attacks across national borders.

In the first chapter, co-authored with Randall K. Filer, we use an unbalanced panel of over 160 countries over a 25 year period to show that terrorism has a significant negative effect on foreign direct investment (FDI). We find evidence that FDI flows are more sensitive to terrorism than either portfolio investments or external debt flows. We also show that terrorism has a negative spill-over effect on the FDI flows of neighboring countries and find evidence that cultural rather than geographical proximity matters most. The results of this chapter open new questions for further research. For example, future empirical studies may discover reasons for the higher sensitivity of FDI to terrorism than other flows of investments. Or, future studies can show more empirical evidence of factors that influence negative spill-over effects of terrorism on neighboring economies.

The results from the first chapter served as motivation for the second chapter, where I estimate the negative effect of terrorism on FDI flow between countries. I employ a sample of 23 countries that send FDI and 52 countries which receive it from 1995 to 2010, and use sample selection correction to address the problem of missing observations. I estimate that an increase of terrorist attacks by one standard deviation is associated with a 12 percent decrease of FDI flow from sender to receiver. I also find that there is a negative spill-over effect of terrorism among investors. Finally, I show that, in the last 16 years, perceived political stability has been the most important factor in attracting FDI. The results of this study suggest that in addition to general security conditions equal to all investors in the host market, there is additional terrorist attack risk for investment for each individual investor. With available data on terrorist attacks and FDI flow between countries, future studies can examine in more detail how this risk can be predicted, and which factors influence it. While the two first chapters address the consequences of terrorist attacks, the last chapter studies its causes.

The third chapter, co-authored with Jitka Malečková, examines support for terrorism in public opinion and its relationship with terrorist attacks. We link the 2007 PEW survey data on opinions regarding the justification of suicide terror attacks on nine regional powers which are often regarded unfavorably by the populations of 16 countries of the Middle East, Africa, and Asia to the NCTC data on international terrorist attacks. We find a robust positive relationship between the share of the population in a country that both justifies suicide bombings and has an unfavorable opinion of another country, and terrorism originating from the former country. The results of this study suggest that policy designers can look at public support for terrorism as a proxy for its occurrence. Future studies can examine the demographic characteristics of those who support terrorism, or study the factors that may change public opinion over time. Finally, future research may study mechanisms by which public support is translated into action or recruitment for terrorist groups.

Full Text: “Topics on Terrorism and Foreign Direct Investment” by Dragana Stanišić

Prof. Lorenz Goette

Université de Lausanne, Switzerland

Authors: Lorenz Goette, Annette Harms, and Charles Sprenger

Abstract: The endowment effect is a reliable feature of human behavior: individuals value a good more when it is in their possession than when they are given the opportunity to buy that same good (Kahneman, Knetsch and Thaler, 1990). It cannot be explained by the standard model, but can be rationalized by reference-dependent preferences that display loss aversion (Kahneman and Tversky 1979; 1991). Key to understanding the disparity between buying and selling prices is to understand where the different reference points for buyers and sellers come from.

In this paper, we test the Koszegi-Rabin (2006) model that proposes that the reference point is formed in expectations. We conduct a standard endowment effect experiment. However, we introduce a new element: with probability p, we force sellers to exchange their mug at the market price even if they did not want to, and buyers to buy the mug even if they chose not to. If reference points are driven by expectations, the possibility of a forced exchange prevents sellers from expecting to keep the mug, and should thus lower their selling price. However, introducing a probability of forced exchange does nothing to the endowment effect. The endowment effect remains stable across all conditions. We overwhelmingly reject each of the predictions by the Koszegi-Rabin model, and any model that places expectations at the center of reference points. Our results provide strong evidence against the hypothesis that reference points are shaped by expectations.

Full Text:  WILL BE AVAILABLE LATER