Abstract
The current literature shows a significant negative impact of terrorism on countries' economies. We explore this relationship in more detail.
Using an unbalanced panel of over 160 countries for up to 25 years and the Global Terrorism Database (GTD) we show a decrease in FDI as a consequence of terrorism. We also find evidence that FDI flows are more sensitive to terrorism than either portfolio investments or external debt ows.
Finally, we test the hypothesis that terrorism has negative spill-over eects on FDI ows into neighboring countries and nd evidence that cultural but not geographical closeness matters.