Terrorism and its Determinants: Panel Data Evidence from 94 Countries

Abstract

In recent years, the world is plagued by terrorism which has slowed down economic growth and development across countries. This paper focuses on the terrorism affected countries to determine what actually causes terrorism. The paper utilized a comprehensive sample of 94 countries from 2005 to 2016 and employed suitable econometric techniques to estimate the specified models. The results revealed that low per capita income and political instability are the main driving forces behind prevalent terrorism. Similarly, the growths of both physical as well as human capital have reduced terrorism whilst inflation and government consumption have positively influenced terrorism. The role of military expenditures is observed to be dual as it impacted terrorism negatively in Muslim countries and positively in non-Muslim countries. Decreased corruption is found to be insignificant for the sample as whole but appeared to be having a negative impact on terrorism when the sample is divided between Muslim and non-Muslim countries. The robustness exercise has also revealed similar findings. Lastly, we found bidirectional causality between political instability and terrorism, political instability and corruption, government consumption and inflation and the growth of GDP per capita and the growth of physical capital stock. The paper suggests that countries where terrorism is on the rise shall focus on increasing income of the population, education, capital stock along with ensuring political stability to eradicate the problem of terrorism.