This paper quantifies the impact of terrorism and conflicts on income per capita growth in Asia for 1970–2004. Our panel estimations show that transnational terrorist attacks had a significant growth-limiting effect. Transnational terrorism reduces growth by crowding in government expenditures. An internal conflict has the greatest growth concern, about twice that of transnational terrorism. For developing Asian countries, intrastate and interstate wars have a much greater impact than terrorism does on the crowding-in of government spending.
Policy recommendations indicate the need for rich Asian countries to assist their poorer neighbors in coping with the negative growth consequences of political violence. Failure to assist may result in region-wide repercussions. Conflict and terrorism in one country can create production bottlenecks with region-wide economic consequences. International and nongovernmental organizations as well as developed Western countries and regions could assist at-risk Asian countries with attack prevention and post-attack recovery.
This study has six purposes. First, and foremost, we present panel estimates for a sample of 42 Asian countries to quantify the impact of terrorism and conflicts on income per capita growth for 1970–2004. Panel estimation methods control for country-specific and timespecific unobserved heterogeneity. Second, we distinguish the influence of terrorism on economic growth from that of internal and external conflicts. Third, these influences are investigated for cohorts of developed and developing countries to ascertain whether development can better allow a country to absorb the impact of political violence. Fourth, econometric estimations relate violence-induced growth reductions to two pathways— reduced investment and increased government expenditures. Fifth, a host of diagnostic and sensitivity tests to support our empirical specifications. Last, we draw some policy conclusions.