The economic impact of terrorism in South Asia

Abstract

This study examines the economic impact of terrorism in South Asia. The region is currently home to 123 active terrorist/insurgent groups and is accountable for over 27 % of recorded global terrorist attacks. The annual data from the six most-terror-affected South Asian countries (Afghanistan, Bangladesh, India, Nepal, Pakistan, and Sri Lanka) during the US-led war on terror (2001 - 2022) is used. For econometric estimation, the five models: fixed-effect, generalized least squares (GLS), generalized estimating equation (GEE), quantile regression (QR), and panel-corrected standard errors (PCSE) are applied. Terror-related death (a proxy for human capital loss) and per capita income (a proxy for purchasing power) are considered to measure terrorism and its economic impact. In addition, four economic indicators (military expenditure, population, official development assistance (ODA), and USAID) and three institutional indicators (electoral democracy index, political violence index, and mobilization for autocracy index) are taken into account as control variables. The result suggests that every additional 886 terror-related human capital loss across the region significantly reduces the purchasing power of each South Asian person by at least 9.800 US dollars. Moreover, among the control variables, military expenditure, political violence, and mobilization for autocracy negatively affect per capita income, while electoral democracy, population, ODA, and USAID positively impact it. This study will also help understand the implications of the United Nations' Sustainable Development Goals (SDGs) agenda and achieving specific targets such as SDG 8 (promoting economic growth) and SDG 16 (promoting just, peaceful, and inclusive societies) based on the most terror-affected region.