Terrorism, Military Expenditure, and Foreign Capital Inflow: An Empirical Study for India

Abstract

Abstract In this chapter, the relationship between terrorism and military expenditure and between terrorism and foreign capital inflow has been studied empirically with Indian data. We considered an index for terrorism based on the number of terrorism incidents, the number of deaths and the number of injuries. Data are collected from the period of 1977–1978 to 2016–2017 on the incidence of terrorism, obtained from the data released by Government of India in July 2016. Augmented Dicky–Fuller (ADF) test is used for unit root and stationarity checks. Johansen co-integration test is performed for testing the presence of co-integrating relationship between Index of terrorism and military expenditure and also between FDI flow and index of terrorism. As a result, a co-integrating relationship is also found between terrorism and military expenditure but not between terrorism and foreign capital inflow. Vector error correction model (VECM) is used to study both the short-run and the long-run relationships between the variables.