The Impact of Transnational Terrorism on U.S. Foreign Direct Investment

Abstract

This article investigates the extent to which transnational terrorist attacks altered U.S. foreign direct investment (FDI). Time-series intervention analysis shows that 9/11 generally had little lasting influence on U.S. FDI flows. Only a few countries that experienced subsequent terrorist attacks displayed a post-9/11 drop in U.S. FDI flows, which, except for Turkey, was not long-lived. For a panel of countries, this study also examines the effect that terrorist attacks against U.S. interests had on the stock of U.S. FDI. Based on a methodology previously applied to the study of U.S. assets abroad, we find that such attacks had a significant, but small, impact on these stocks in OECD countries. Greece and Turkey displayed the largest declines—5.7 percent and 6.5 percent of their average U.S. FDI stocks, respectively. There was no such effect for non-OECD countries. Terrorist efforts to limit U.S. FDI have been cost-effective.