Trade, aid and terror

Abstract

Purpose

This paper aims to assess the role of foreign aid in reducing the hypothetically negative impact of terrorism on trade using a panel of 78 developing countries with data for the period 1984-2008.

Design/methodology/approach

The empirical evidence is based on interactive generalised method of moment estimations with forward orthogonal deviations. Bilateral, multilateral and total aid dynamics are used, whereas terrorism entails domestic, transnational, unclear and total terrorism dynamics.

Findings

The following findings have been established. First, while bilateral aid has no significant effect on trade, multilateral aid and total aid have positive impacts. Second total terrorism, domestic terrorism and transnational terrorism increase trade with increasing order of magnitude. Third, corresponding negative marginal effects on the interaction between foreign aid (bilateral and total) and terrorism display thresholds that are within range. Fourth, there is scant evidence of positive net effects. Overall, the findings broadly indicate that foreign aid is a necessary but not a sufficient policy tool for completely dampening the effects of terrorism on trade.

Originality/value

There is a growing policy interest in the relationship between terrorism and international development outcomes.

Citation

Asongu, S. and Kodila-Tedika, O. (2017), "Trade, aid and terror", International Journal of Development Issues, Vol. 16 No. 1, pp. 2-24. https://doi.org/10.1108/IJDI-08-2016-0046