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- Title
Terms-of-trade and counterterrorism externalities.
- Authors
Bandyopadhyay, Subhayu; Sandler, Todd; Younas, Javed
- Abstract
This article investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation's defensive counterterrorism efforts, while transferring some of its attacks abroad. Terms-of-trade considerations lead the developed nation to raise its counterterrorism level beyond the 'small-country' level, thus compounding its overprovision of these measures. By contrast, the developing nation limits its defensive countermeasures below that of the small-country level. This asymmetry is a novel finding. The analysis is extended to include proactive countermeasures to weaken the terrorist group. Again, the developed country raises its efforts owing to the terms-of-trade externality, which now opposes the underprovision associated with proactive efforts. A second extension allows for several developing-country exporters of the primary product.
- Subjects
DEVELOPING countries; EXTERNALITIES; TERRORIST organizations; FREE trade; TERRORISM
- Publication
Oxford Economic Papers, 2020, Vol 72, Issue 2, p293
- ISSN
0030-7653
- Publication type
Article
- DOI
10.1093/oep/gpz037