Yes, there is a relationship between inequality and terrorism, but not a big one.

by Abdullah Ijaz* and Sanghamitra Bandyopadhyay**

Inequality is well established in the social sciences to be detrimental to societal well-being and for its long standing association with social and political instability. One of the most pressing concerns of the effects of inequality is increased violence, conflict and terrorism. A growing literature concludes that higher levels of income inequality are associated with terrorism. The literature, though, is not clear whether the association stands with home grown (or domestic) terrorism, or whether it is tied to international political rifts which give rise to transnational terrorism.  Domestic terrorism is often found to be associated with poverty, while the causes underpinning transnational terrorism are governed by highly complex international political dynamics. Violence and terrorism have direct and indirect economic costs for both developed and developing countries. Terrorism may occur in many different forms, especially in the presence of weak institutional structures and religious conflict.

The current empirical literature suggests that this relationship is positive but is inconclusive on the nature of the relationship. In order to investigate the nature of the relationship, in our paper we examine the relationship between income inequality and terrorism using a semi-parametric approach to specifically identify non-linearities in the relationship.

Using a sample of 139 countries, including 104 developing and middle-income group countries, we use top income percentile shares as a measure of inequality to provide robust evidence that inequality is weakly and positively associated with terrorism. We use several top income percentile shares as our principal inequality measure, obtained from the World Inequality Database, and estimate our model using the top 1% and top 10% income shares. We also use the Gini measure for robustness, obtained from the World Income Inequality Database. Our principal dependent variable is the total number of terrorist incidents per country-year. We also estimate our model using domestic terrorism, due to it being more frequently observed than transnational terrorism. In order to investigate for the nature of the relationship, we estimate our model using semi-parametric methods specifically designed to identify non-linearities in the inequality and terrorism relationship.

Figure 1. Non-parametric component of the effect of top 1% income shares on total and domestic terrorism incidents for all countries

Strikingly, we observe that inequality has different non-linear associations with terrorism for developed, middle-income and developing countries. Figure 1 highlights that after controlling for explanations of terrorism other than inequality, the positive relationship between inequality and terrorism discussed in the existing empirical literature is very weakly evident for both total (domestic and transnational combined) and domestic terrorism.

In addition, we find that countries with large rural populations have a lower incidence of terrorism. This highlights the importance of developing countries in the sample being associated with low levels of terrorism. We also find consumption expenditure is negatively associated with all definitions of terrorism, again indicating that terrorism is characteristic of low income/consumption expenditure countries. The two results combined suggest that the observed relationship between inequality and terrorism is a characteristic of emerging or middle income countries, which have both large rural populations and low levels of consumption expenditures, compared with rich countries.

Our findings thus highlight two new salient empirical features of the relationship between income inequality and terrorism. Using recently recommended measures of inequality, i.e., top percentile income shares, we fail to confirm previous evidence of a positive relationship between inequality and terrorism. It is, at best, weakly observed, in particular for developing and middle-income group countries. We also find that the relationship is nonlinear, suggesting no particular functional form, and thus deserves future research to identify the mechanisms which govern this relationship.

* Abdullah Ijaz is a doctoral candidate at the School of Business and Management and the Centre for Globalisation Research, specialising on poverty, entrepreneurship and terrorism.

** Sanghamitra Bandyopadhyay is Deputy Director of the Centre for Globalisation Research and Reader in Economics. She is also the lead for the UK-wide research group, Research Circle for the Study of Inequality and Poverty.

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