Terrorism Financing, Recruitment and Attacks: Evidence from a Natural Experiment in Pakistan∗
Terrorism Financing, Recruitment and Attacks: Evidence from a Natural Experiment in Pakistan∗ Nicola Limodioy August 2018 Abstract I investigate the relation between terrorism financing and attacks through a panel of 1,545 Pakistani cities and exogenous variation in a Sharia-compliant funding source. Cities exposed to higher terrorism financing experience more attacks, with organizations reacting to temporary financial inflows. Two methodological innovations further refine this finding. First, the effect of financing on attacks increases in terrorist recruitment, measured using dark-web data on Jihadist fora and machine-learning. Second, a novel city-organization variation allows: a) dissecting the demand and supply of terrorist attacks, with supply exclusively explaining these results; b) estimating the elasticity of terrorist attacks to financing (0.08). JEL: H56, G30, D64 Keywords: Terrorism, Finance, Charitable Donations ∗I would like to express my gratitude for their useful suggestions to Charles Angelucci, Giorgia Barboni, Eli Berman, Tim Besley, Barbara Biasi, Christopher Blattman, Leah Platt Boustan, Sandro Brusco, Ethan Bueno de Mosquita, Elena Carletti, James Choi, Decio Coviello, Paolo Colla, Ben Crost, Filippo De Marco, Erika Deserranno, Livio Di Lonardo, Will Dobbie, Tiberiu Dragu, Oeindrila Dube, Carlo Ambrogio Favero, Martin Feldstein, Dana Foarta, Thomas Fujiwara, Rohan Ravindra Gudibande, Selim Gulesci, Nicola Gennaioli, Elisa Giannone, Massimo Guidolin, Dejan Kovac, Alan Krueger, Eliana La Ferrara, Simone Lenzu, Alessandro Lizzeri,
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