UC Irvine

New directions in terrorism have been enabled and invigorated by the extraordinary 9/11 terrorist attacks. This surge of interest in terrorism has led to the investigation of some overlooked, but potentially important empirical questions involving the causes and consequences of terrorism. However, on certain empirical questions, the causal analyses are fairly superficial, leaving ample room for more thorough investigations into the causal claims embedded in the terrorism literature. For example, previous empirical studies have separately studied the causal relationship running from both terrorism to trade and trade to terrorism, but neither of these literatures seriously grapple with issues of reverse causality. Broadly speaking, I contribute to both empirical literatures by using two distinct instrumental variables approaches. For this reason, the first two chapters speak not only to whether the causal relationship between terrorism and trade is bidirectional but also to the sign of each causal effect. Furthermore, in the third chapter, I make use of a third instrumental variables approach, which reflects that of the second chapter, to examine the understudied empirical link running from trade to religious hostilities. Regarding the results of the first chapter, the two-stage least squares estimate of terrorism is negative, statistically significant, and substantially stronger in absolute value compared to that of OLS. Hence, I conclude that OLS estimates systematically downplay the negative impact of terrorism on trade. To determine if this upward bias on the terrorism estimate can be explained by trade’s positive effect on terrorism, I study the reverse causal process in the second chapter. Naturally, the two-stage least squares estimate of the effects of trade on future terrorism are significant, positive, and stronger than OLS. Now, in part because the specific channel through which trade increases terrorism is not obvious, the third chapter explores one possible channel, namely religious hostilities. The two-stage least squares estimate of the effects of trade on future religious hostilities is significant and positive, while OLS exhibits a significantly negative estimate. Therefore, the third chapter provides evidence that trade does foster religious hostilities, which potentially reflects a transmission channel through which trade has an amplifying effect on terrorism.