Causal linkages between terrorism and economic growth: Evidence from the four provinces of Pakistan

This study analyses the dynamics of causal linkages between terrorism and economic growth across four provinces of Pakistan using Bivariate and Trivariate Hsaio Granger Causality test. The empirical evidence reveals within country idiosyncratic causal trends; hence demonstrating the importance of analysing sub-national variations while determining the extent to which terrorism is related with other variables. The estimates suggest that terrorist activity Granger causes economic growth in Sindh, Khyber Pakhtunkhwa and Balochistan provinces. The reverse causation from economic growth to terrorism is observed in case of Khyber Pakhtunkhwa only. The evidence presented in this paper stresses the importance of taking into account higher vulnerability of comparatively weaker sub-national economies while formulating relevant policies to ameliorate negative impact of terrorism.