Terrorist attacks, security concerns, and GVC positions – an empirical cross-country study based on industry heterogeneity

Based on the perspective of industry productivity, this article measures the sensitivities of different industries to external public security risks using stochastic frontier analysis, focusing on the relationship between the changes in industries’ production line positions triggered by terrorist attacks and the industries’ security risk sensitivities. We provide evidence that terrorist attacks have a significant adverse impact on the production line positions of global industries, and the strength of those positions’ reactions to terrorist attacks is determined by the degree of the industries’ security risk sensitivities. The reactions to terrorist attacks are nonmonotonic across industries’ security risk sensitivities, with the largest effects in industries near the seventy-fifth percentile of the distribution. This phenomenon is particularly pronounced in high-income and upper-middle-income countries, and also in regions with economic and trade cooperation agreements. A further decomposition analysis of the different production stages shows that complex global value chain (GVC) activities, especially those that involve domestic value-added re-exports to third countries, are more vulnerable to negative shocks from terrorist attacks.