Terrorist activities and capital flows of developed countries

Abstract

The main aim of this paper is to measure the consequences of terrorist activities on capital flows of the developed countries. Capital flows are interpreted as FDI inflows and outflows. The methodology is based on the dynamic panel data models (System-2 step-GMM estimator) using a sample of 36 developed countries all over the world from 2000 to 2016. The key results indicate that the terrorist incidents have different impact on capital flows of the developed countries compared to impacts of economic and institutional variables. All the variables used in the paper show the level of their impact on capital flows. The results indicate that terrorist activities weaken economic activity of a country, while minimising capital flows in certain situations. The recommendations and proposals are given based on the results of research.