Search Results
Working Paper
Terms-of-Trade and Counterterrorism Externalities
This paper investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation?s defensive counterterrorism efforts, while transferring some of its attacks abroad. Terms-of-trade considerations lead the developed nation to raise its counterterrorism level beyond the ?small-country? level, thus compounding its over provision of these measures. By contrast, the developing ...
Working Paper
Terrorism, Trade and Welfare: Some Paradoxes and a Policy Conundrum
We present a standard trade model and show that terrorism can be trade inducing, starting from autarky. In addition, terrorism can be shown to be welfare augmenting for a group of nations. Finally, we present some qualitative conditions that identify when a nation?s trade volume may rise (or fall) in response to a greater incidence of terrorism. Our trade and welfare results point to potential difficulties in international coordination of counterterrorism policy because of terrorism?s differential impact across nations.
Working Paper
Measuring Geopolitical Risk
We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of ...
Journal Article
The Economic Effects of a Potential Armed Conflict Over Taiwan
This article examines the likely economic effects of a Chinese invasion or blockade of Taiwan for the U.S. and the world by considering historical precedents. Such a conflict would likely produce a flight-to-safety in the asset market, huge disruptions in international trade, and banking problems, and it would greatly exacerbate existing fiscal pressures. The authorities of the People’s Republic of China would probably try to sell U.S. and other western securities prior to a conflict to avoid sanctions on those assets. Such sales would be temporarily disruptive but would likely have only ...
Journal Article
The Trade-Offs of Counterterrorism Policies
This article provides a modern overview of counterterrorism tools and their trade-offs for curbing terrorist attacks and their consequences. Defensive and proactive countermeasures constitute two main classes of counterterror tools deployed by targeted governments. The primary drawback of defensive actions, which make terrorist attacks more costly and less apt to succeed, is attack transference that shifts the mode, venue, or target of attacks to those less protected. In contrast, offensive proactive measures, which confront the terrorists directly, may result in backlash as terrorist ...
Working Paper
Voluntary participation in a terror group and counterterrorism policy
A three-stage game investigates how counterterrorism measures are affected by volunteers’ choice in joining a terrorist group. In stage 1, the government chooses both proactive and defensive countermeasures, while looking ahead to the anticipated size and actions of terrorist groups. After radicalized individuals choose whether to join a terrorist group in stage 2, group members then allocate their time between work and terrorist operations. Based on wages and government counterterrorism, the game characterizes the extensive margin determining group size and the intensive margin ...
Working Paper
Fiscal Stimulus and Consumer Debt
In the aftermath of consumer debt-induced recession, policymakers have questioned whether fiscal stimulus is effective during the periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2006-2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness. The results suggest that fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata ...
Working Paper
On the Economic Mechanics of Warfare
How do war-related expenditures affect economically-relevant outcomes at a war’s conclusion (e.g., prevailing side, duration, and casualties)? I present a model of attrition and characterize the effects of resources at a military conclusion (one side cannot fight anymore) and a political conclusion (one side quits). I analyze the Pacific War through the lenses of the model both theoretically and empirically. I find that a parsimonious parameterization reproduces well the aggregate patterns of destruction, measured in ship tonnage, for both belligerents.
Working Paper
On the Economic Mechanics of Warfare
A large literature is concerned with war finance, but there is little by way of understanding how war-related expenditures affect the economically-relevant outcomes of wars, e.g., prevailing side, duration, or destruction and casualties. I present a model of attrition in which I characterize the effects of resources on the outcomes of war for a military conclusion (when one side cannot fight anymore) and a political conclusion (when one side does not want to fight anymore). I discuss the role of GDP for both types of conclusion. I also analyze the mechanics of third-party support to a small ...
Working Paper
Fiscal multipliers in advanced and developing countries: evidence from military spending
Using novel data on military spending for 129 countries in the period 1988?2013, this paper provides new evidence on the effects of government spending on output in advanced and developing countries. Identifying government-spending shocks with an exogenous variation in military spending, we estimate one-year fiscal multipliers in the range 0.75-0.85. The cumulative multipliers remain significantly different from zero within three years after the shock. We find substantial heterogeneity in the multipliers across groups of countries. We then explore three potential sources leading to ...