Growth and Fiscal Consequences of Terrorism in Pakistan

Abstract

This study empirically evaluates the growth and fiscal consequences of terrorism in Pakistan_ by assessing the terrorism and macroeconomic relation using different proxies for terrorism, i.e., incidents of terrorism, Injured Victims, and total Deaths from terrorist attacks_ by using annual time series data from 1981-2020. In this study, two models are used, i.e. model for proxies of terrorism and a model for terrorism index as well. The paper has quantified the short-run and long-run analysis by applying the Vector Auto Regressive Model (VAR) and Johansen Co-integration technique, respectively. In the short run, terrorism has negative implications for economic growth in Pakistan. The military spending showed a positive impact on the economic growth of Pakistan; an increase in defense expenditures will boost the country’s economy in the short run. In the long run, investment activities showed a direct relationship with the economic growth of Pakistan. While the intuition is that government spending on security measures improve law & order situation in the country, which boosts economic activity in Pakistan.