Using the ITERATE dataset, we explore the origins of transnational terrorist activity, from 1982 through 1997, in 118 countries. We model terrorism, not as a function of a nation's ethnic, religious or linguistic fractionalization, but of an independent measure of perceived ethnic tensions. When we control for institutional quality, evidence that political rights and civil liberties mitigate the terrorism-producing effects of ethnic tensions exists only since 1990. Economic freedoms, on the other hand, robustly reduce the number of terrorist attacks originating in ethnically tense societies. JEL Codes: D74

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