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Effect of terrorism on economic growth in Pakistan: an empirical analysis

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  • Muhammad Zakaria
  • Wen Jun
  • Haseeb Ahmed

Abstract

The paper examines the impact of terrorism on economic growth in Pakistan. Channel variables, such as foreign direct investment (FDI), domestic investment, and government spending, through which terrorism influences economic growth, are identified. For empirical analysis, annual data for the period 1972–2014 are used, and a structural model is estimated using the generalised method of moments (GMM) estimation approach. The results reveal that (1) the impact of terrorism on FDI and domestic investment is significantly negative, whereas the impact on government spending is significantly positive and (2) the net effect of terrorism on economic growth is negative. One per cent increase in terrorism reduces FDI by 0.104 per cent, domestic investment by 0.039 per cent and economic growth by 0.002 per cent. To increase economic growth more resources must be allocated to improve law and order. To attract foreign investment, complementary domestic investment must be increased.

Suggested Citation

  • Muhammad Zakaria & Wen Jun & Haseeb Ahmed, 2019. "Effect of terrorism on economic growth in Pakistan: an empirical analysis," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 32(1), pages 1794-1812, January.
    • Handle: RePEc:taf:reroxx:v:32:y:2019:i:1:p:1794-1812
    DOI: 10.1080/1331677X.2019.1638290
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    Cited by:

    1. Essosinam Franck Karabou & Komlan Ametowoyo Adeve, 2024. "Empirical investigation of the relationship between terrorism, public debt and economically active women in the ECOWAS zone," Economics Bulletin, AccessEcon, vol. 44(2), pages 528-543.
    2. Ekene ThankGod Emeka & Jonathan E. Ogbuabor & Davidmac O. Ekeocha, 2024. "Terrorism and economic complexity in Africa: The unconditional impact of military expenditure," African Development Review, African Development Bank, vol. 36(1), pages 139-152, March.

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