Financial Impact of Terrorism on Macroeconomic Indicators of Pakistan

Abstract

For researchers rhetoric and clichés about terrorism and its socio-economic impacts are not sufficient. Quantification of relationship between terrorism and its socio-economic impacts is required. This study is an attempt to find the nature of relationship between terrorism and macro economy of Pakistan. Casualties by terrorism are chosen as independent variable and GDP per capita is chosen as dependent variable. Trade Openness, Aggregate value added, and remittances are also used as independent variables. The data for all variables is collected for the period 1980-2016 from World Bank, GTD and SATP. Unit root, Granger Causality, Johansen Co-integration, and Error Correcting Tests are applied to check the significant long run relationship between dependent and independent variables. It is found that there exists a significant long run negative relationship between GDP per capita and terrorism casualties. 1% increase in Terrorism casualties would decrease GDP by 0.027% or vice versa. Also Value added, trade openness and remittances have significant long run positive relationship with GDP per capita. On the basis of quantitative findings focused socioeconomic policies can be designed for a tolerant and peaceful society with strong and growing economy.