Terrorist attacks, security concerns, and GVC positions – an empirical cross-country study based on industry heterogeneity

Abstract

Based on the perspective of industry productivity, this article measures the sensitivities of different industries to external public security risks using stochastic frontier analysis, focusing on the relationship between the changes in industries’ production line positions triggered by terrorist attacks and the industries’ security risk sensitivities. We provide evidence that terrorist attacks have a significant adverse impact on the production line positions of global industries, and the strength of those positions’ reactions to terrorist attacks is determined by the degree of the industries’ security risk sensitivities. The reactions to terrorist attacks are nonmonotonic across industries’ security risk sensitivities, with the largest effects in industries near the seventy-fifth percentile of the distribution. This phenomenon is particularly pronounced in high-income and upper-middle-income countries, and also in regions with economic and trade cooperation agreements. A further decomposition analysis of the different production stages shows that complex global value chain (GVC) activities, especially those that involve domestic value-added re-exports to third countries, are more vulnerable to negative shocks from terrorist attacks.

KEYWORDS:

• Terrorist attacks
• GVC positions
• security sensitivity
• stochastic frontier analysis
• quasi-natural experiments

JEL Classifications:

• F510
• L14
• F60
• F14

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The data are calculated by the author, and the raw data source is: National Consortium for the Study of Terrorism and Responses to Terrorism (START), University of Maryland. (2019). The Global Terrorism DatabaseTM.

2 National Consortium for the Study of Terrorism and Responses to Terrorism (START), University of Maryland. (2019). The Global Terrorism DatabaseTM.

3 The following industries were excluded from the 56 industries in WIOD (2016) due to missing data: Accommodation and food service activities(I); Audiovisual and broadcasting activities(J59_J60); Activities of extraterritorial organizations and bodies(U).

4 40 countries: Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, India, Indonesia, Ireland, Italy, Japan, Latvia, Lithuania, Malta, Mexico, Netherlands, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

5 Four specific categories countries:

EU(14)-These countries joined the EU before the year 2000,and data for Luxembourg is not included due to missing data: Austria, Belgium, Germany, Denmark, Spain, Finland, France, Greece, Ireland, Italy, Netherlands, Portugal, Sweden, United Kingdom of Great Britain and Northern Ireland;

EU(13)-These countries joined the EU after the year 2000: Bulgaria, Cyprus, Czech Republic, Estonia, Croatia, Hungary, Lithuania, Latvia, Malta, Poland, Romania, Slovakia, Slovenia;

NAFTA: Canada, Mexico, United States;

ASIA : Australia, India, Indonesia, Japan, Republic of Korea.