Domestic Terrorism, Investment and Economic Growth: Evidence from Developing Countries

Abstract

The main objective of the study is to empirically examine the relationship between domestic terrorism, investment and economic growth. The study finds the implication of domestic terrorism on investment and growth among 26 Muslim and 14 Christian developing countries. Data regarding the incidence of terrorism are obtained from Global Terrorism Database (2015). While, economic data are obtained from World Development Indicators (WDI, 2015). The data on external and internal conflict have been extracted from Global Conflict Risk Index (GCRI, 2015) for the time period 1990-2015. Ordinary least square (OLS), feasible generalized least squares (FGLS) and system generalized method of moment (SGMM) approaches were applied to ensure robust results with different specification of models by using dummy variable. The value of Dummy variable is 1, if country is Muslim otherwise 0. For all specifications, it is confirmed that increase in domestic terrorism will decrease the level of investment directly, but the percentage decrease in investment due to terrorism is high among Muslim as compared to Christian developing economies. The results indicate the public policy efforts to mitigate the loss of private investment which can be done initially by public investments to ensure public safety. Keywords: OLS, FGLS, SGMM, Domestic Terrorism, Muslim and Christian Developing Countries.