Dying to bankrupt: the effect of suicide terrorism on foreign direct investment

Abstract

ABSTRACT Why do terrorist groups perpetrate suicide attacks? Political scientists maintain that terrorist groups adopt suicide terrorism for its strategic benefits. Yet previous studies have not demonstrated that suicide terrorism outperforms conventional terrorism. In fact, the most prominent studies do not even systematically compare the strategic effects of suicide terrorism to conventional terrorism to justify the cost. To date, the presumed strategic utility of suicide terrorism remains elusive. Although economists have assessed the impact of terrorism broadly on various economic measures, our study is the first to rigorously compare the effects of suicide terrorism to conventional terrorism on foreign direct investment. Consistent with bargaining theory, we find robust evidence that suicide terrorism “works” by depressing more than conventional attacks FDI in the target country. This effect is strong across PCSE model specifications, particularly in target countries weaker at counterterrorism. The study has important implications for both terrorism studies and international business.