Terrorism: a threat to entrepreneurship?

By Abdullah Ijaz

Terrorism is a complex phenomenon and it has deteriorating effects on the global economy. Since 2002, the world has witnessed a rise in all forms of terrorism. The economic disruptions caused by violent attacks and the fear of terrorism are massive. The global economic impact of terrorism amounted to USD33 billion in 2018 in constant PPP terms. Fear of terrorism influences economic behaviour and changes investment climate of the affected region (Global Terrorism Index, 2019). The direct costs of terrorism include deaths, injuries, GDP losses, property damage for the countries in conflicted zones. However, there are many indirect costs involved as well such as decline in tourism, financial markets, trade, foreign direct investment and entrepreneurship (Tingbani et al., 2018).

According to Global Terrorism Index 2019, South Asia, MENA and Sub-Saharan Africa are the most impacted regions which accounted for 93% of all deaths from terrorism. These regions also had most lethal attacks, averaging 1.95, 2.67 and 4.11 people killed per attack respectively.

Abdullah Ijaz
Source: GTD, IEP Calculations

Undoubtedly, terrorism has adverse effects on business activity, however, the intensity of the impact may not be the same because of institutional voids. Most fragile countries are perceived riskier by investors because of their inability to control their own national borders and the continuous threats of war and internal conflict they face. Moreover, they lack institutions which may facilitate investment climate and entrepreneurial landscape. This often results in higher costs of doing business and creates hindrances for new entrepreneurs to enter the market or survive in the long-run.

Terrorism causes many repercussions for aspiring entrepreneurs in the conflicted regions as banks hesitate to ensure credits, there is an absence of rule of law, justice is compromised and denied, and non-enforcement of intellectual property rights. Although empirical studies dealing with terrorism and economic variables have increased dramatically since 9/11, there is still relatively dearth of material concerning the negative consequences of terrorism upon entrepreneurship.

In one of my chapters of PhD thesis, I intend to thoroughly investigate the interplay between terrorism, corruption and entrepreneurship in developing and developed countries using a panel of 92 countries over the period 2006-2017. It does not only affect lives, but it also reduces investment in the country (Crain & Crain, 2006). The aim of my study is to explore different channels through which terrorism impacts entrepreneurship. Preliminary results show that terrorism does influence entrepreneurial activities in developing countries. The entrepreneurial rate decreases in the conflicted region. Further, we explore the effect of different types of terrorism incidents and we find that domestic terrorism and transnational terrorism impacts entrepreneurial activity differently. This paper has policy implications for governments willing to enhance entrepreneurial landscape of the country.

References

Crain, N. V. & Crain, W. M. (2006). Terrorized economies. Public Choice 128 (1-2),317–349.

Global Terrorism Index (2019). http://visionofhumanity.org/

Tingbani, I., Okafor, G., Tauringana, V., & Zalata, A. M. (2018). Terrorism and country-level global business failure. Journal of Business Research, 2-11.

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