DP5360 The Impact of Terrorism Across Industries: An Empirical Study

Author(s): Claude Berrebi, Esteban F Klor
Publication Date: November 2005
Keyword(s): defense sector, stocks returns, terrorism
JEL(s): D74, G14, L64, P16
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5360

This paper uses scoring matching techniques and event study analysis to elucidate the impact of terrorism across different economic sectors. Using the Israeli-Palestinian conflict as a case study, we differentiate between Israeli companies that belong to the defence, security or anti-terrorism related industries and other companies. The findings show that whereas terrorism has a significant negative impact on non defence-related companies, the overall effect of terrorism on defence and security-related companies is significantly positive. Similarly, using panel data on countries' defence expenditures and imports from Israel, we find that terror fatalities in Israel have a positive effect on Israeli exports of defence products. These results suggest that the expectation of future high levels of terrorism has important implications for resource allocation across industries.