Causal Relationship Between Terrorism and Economic Indicators

This study aims to understand the causal linkage between terrorism and various economic indicators such as Gross Domestic Product, Tourism, and Foreign Direct Investment by running a Granger Causality regression. The expected results will show that terrorism does indeed decrease or increase as a result of changes in these economic indicators. In order to test for Granger Causality a unit-root test will first be performed, followed by a cointegration test. The results show that each nation experiences a different causal relationship with each of these indicators. Inflation is the most significant causal indicators in terms of percentage of countries tested which have a significant causal relationship. The results of this study will be helpful in making advice for policy decisions. Ultimately, ensuring economic stability, especially in regards to inflation, is the biggest policy implication to be taken away from this study