Terrorism and its impact on the cost of debt

Procasky, William J.; Ujah, Nacasius U.

doi:10.1016/j.jimonfin.2015.04.007

Cited by 57 publications

(36 citation statements)

References 18 publications

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“…They prove that terrorist attacks have a very negative effect on the stock markets. Procasky and Ujah (2016) study the long‐term effects of terrorist attacks on debt markets. They find that terrorist attacks have different long‐term effects on developing and developed countries.…”

Section: Literature Reviewmentioning

confidence: 99%

“…This research theme is a subject of great concern for investors. As a result, the literature on whether terrorism can increase or decrease the public debt/gross domestic product (GDP) ratio has been the subject of much publicity in recent years (Procasky & Ujah, 2016). In order to determine this relationship between public debt, terrorism, and the informal economy in these countries, we use the three indicators of terrorism—namely, national, transnational and uncertain—for the 47 African countries.…”

Section: Introductionmentioning

confidence: 99%

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The impact of terrorism on public debt in African countries

Abid

Sekrafi

2020

African Development Review

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Given the increase in the number of terrorist attacks in African countries, a better understanding of the relationship between terrorism, the informal economy and public debt is essential for policymakers. The model is empirically tested for 47 countries during the period 1996–2015. We use ordinary least squares (OLS), random effects (ER) and system generalized method of moments (GMM). Three terrorism indicators are used: the uncertain, the domestic, and the transnational. The results confirm that the rise in terrorism and the informal economy lead to an increase in public debt. The results also show that the informal economy magnifies the effect of terrorism on public debt. In addition, the results suggest that a larger informal economy reduces income taxes and therefore increases public debt and the increase in public spending reinforces the effects of terrorism on public debt. The reduction of terrorism should therefore be governments’ primary political objective. Given the detected complementarity between terrorism and the informal economy, the reduction of terrorism would also reduce the size of the informal economy and the public debt. The reduction of terrorism will also minimize the harmful effects of terrorism on public debt through public spending.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The impact of terrorism on public debt in African countries

Abid

Sekrafi

2020

African Development Review

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“…The risks are integrated into financial flows as the cost of equity and/or cost of debt. Conflict increases downside risks; therefore, projects in fragile areas are induced to higher costs of capital [68,69]. These values affect, in turn, the weighted average cost of capital (WACC) [66].…”

Section: Risk-adjusted Discount Ratementioning

confidence: 99%

Supporting Electrification Policy in Fragile States: A Conflict-Adjusted Geospatial Least Cost Approach for Afghanistan

et al. 2020

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Roughly two billion people live in areas that regularly suffer from conflict, violence, and instability. Infrastructure development in those areas is very difficult to implement and fund. As an example, electrification systems face major challenges such as ensuring the security of the workforce or reliability of power supply. This paper presents electrification results from an explorative methodology, where the costs and risks of conflict are explicitly considered in a geo-spatial, least cost electrification model. Discount factor and risk premium adjustments are introduced per technology and location in order to examine changes in electrification outlooks in Afghanistan. Findings indicate that the cost optimal electrification mix is very sensitive to the local context; yet, certain patterns emerge. Urban populations create a strong consumer base for grid electricity, in some cases even under higher risk. For peri-urban and rural areas, electrification options are more sensitive to conflict-induced risk variation. In this paper, we identify these inflection points, quantify key decision parameters, and present policy recommendations for universal electrification of Afghanistan by 2030.

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“…Political riskexpropriation risk, transfer risk, and violence riskreduces investor confidence in economies and governments (Archer et al 2007;Jensen et al 2008;Bechtel 2009;Biglaiser et al 2008;Jensen 2003;Jensen 2008;Bernhard et al 2006;Jensen et al 2005;Busse et al 2007). Governments facing armed conflict thus often find their foreign investment flows curtailed (Li et al 2010;Busse et al 2007), sovereign credit ratings downgraded (Brewer et al 1990;Procasky et al 2016;Chen et al 2004;Castañeda et al 2012), and corporate risk insurance premiums raised (Jensen et al 2008).…”

Section: The Supply-side Logicmentioning

confidence: 99%

Violent Crime and Capital Market Punishment: How Violent Crime Affects the Supply of Debt to Municipal Mexico

Benton

2017

St Comp Int Dev

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Research shows that violent and organized crime reduces foreign direct investment and that armed conflict lowers sovereign credit ratings. Building on these insights, I argue violent crime reduces financial institutions' confidence in the capacity of governments to repay loans, raising the costs attached to loans and reducing government debt through a "supply-side" logic. Yet, the supply-side logic is difficult to test. Governments can render lenders indifferent to violent crime by accepting higher borrowing costs, resulting in no observed relationship between them. It is for this reason that analysis of the effect of violent crime on credit ratings alone cannot tell us much about its effect on government debt. In this study, I explain how analysis of subnational debt from welfare-minded public banks and profit-minded private lenders can distinguish the supply-side logic from the null hypothesis. Cross-sectional time-series analysis of homicide rates and municipal debt in Mexico demonstrates support for the supply-side logic. Evidence of the supply-side logic reveals that those governments most in need of cost-efficient financing are most likely to be charged higher prices for it or priced out of capital markets altogether, signaling the need for market intervention in these cases.

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Terrorism and its impact on the cost of debt

Cited by 57 publications

References 18 publications

The impact of terrorism on public debt in African countries

The impact of terrorism on public debt in African countries

Supporting Electrification Policy in Fragile States: A Conflict-Adjusted Geospatial Least Cost Approach for Afghanistan

Violent Crime and Capital Market Punishment: How Violent Crime Affects the Supply of Debt to Municipal Mexico

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