Working Paper Series No. 2009-02 Causal Linkages Between Domestic Terrorism and Economic Growth Thomas Gries, Tim Krieger and Daniel Meierrieks February 2009 Center for International Economics University of Paderborn Warburger Strasse 100 33098 Paderborn / Germany Causal Linkages Between Domestic Terrorism and Economic Growth Thomas Gries, Tim Kriegery, Daniel Meierrieksz February 17, 2009 Abstract We use the Hsiao-Granger method to test for growth-terrorism causality for seven Western European countries. In bivariate settings, the impact of economic performance on domestic terrorism is very strong. In trivariate settings, the impact of performance on terrorism diminishes. Here, we …nd that economic performance leads terrorist violence in robust ways only for three out of seven countries. Terrorism is almost never found to causally in‡uence growth in bivariate and trivariate speci…cations. Our …ndings indicate that (i) the role of economic performance in determining terrorist violence appears to have been important for some countries and (ii) all attacked economies have been successful in adjusting to the threat of terrorism. Keywords: Domestic Terrorism, Growth, Hsiao-Granger Causality, West- ern Europe JEL Classi…cation: C32, N40, 052 Corresponding Author. University of Paderborn, Department of Economics, Warburger Straße100, 33098 Paderborn. Ph.: +49-(0)5251-60-2113, Fax: +49-(0)5251-60-3540, E-mail:
[email protected]. yUniversity of Paderborn, Department of Economics, Warburger Straße 100, 33098 Paderborn, Germany. Ph.: +49-(0)5251-60-2117, Fax: +49-(0)5251-60-5005, E-mail:
[email protected]. zUniversity of Paderborn, Department of Economics, Warburger Straße 100, 33098 Paderborn, Germany, Ph.: +49-(0)5251-60-2115, Fax: +49-(0)5251-60-2115, E-mail:
[email protected].