Terrorism Financing, Recruitment, and Attacks

Abstract

This paper investigates the effect of terrorism financing and recruitment on attacks. I exploit a Sharia‐compliant institution in Pakistan, which induces unintended and quasi‐experimental variation in the funding of terrorist groups through their religious affiliation. The results indicate that higher terrorism financing, in a given location and period, generate more attacks in the same location and period. Financing exhibits a complementarity in producing attacks with terrorist recruitment, measured through data from Jihadist‐friendly online fora and machine learning. A higher supply of terror is responsible for the increase in attacks and is identified by studying groups with different affiliations operating in multiple cities. These findings are consistent with terrorist organizations facing financial frictions to their internal capital market.

Armed groups: Competition and political violence

“…The intuition behind our reduced form event study is that districts in which the BLA has been more active are more affected by the split, i.e., the districts are more likely to have a UBA presence compared to those districts with less BLA activity. Limodio (2022), for example, provides empirical evidence in line with the idea that terrorist groups in Pakistan face internal frictions in their capital and labor markets, i.e., groups are more active in locations in which they have more personnel and capital. After the BLA split, it is reasonable that districts with a larger presence prior to treatment are more likely to host both groups post-treatment, all else being equal.…”

“…Conceptually, we highlight that the proliferation of actors has an independent effect on political violence, even if local determinants of conflict, such as opportunity cost (Dube and Vargas, 2013) or state capacity (Fearon and Laitin, 2003;Dube and Naidu, 2015) remain constant. We also provide evidence that group proliferation seems not to affect infighting between groups in settings where group finances do not depend on the extraction of natural resources (as in Morelli and Rohner, 2015;Adhvaryu et al, 2018;Gehring et al, 2019), but mostly on local contributions (Limodio, 2022). On the econometric side, we show that group proliferation is a potential omitted variable in many studies and cannot be captured by fixed effects in monadic settings.…”

“…In such cases, the additional group not only challenges the monopoly of violence from other actors but threatens their distinct support base, e.g., financial supporters and recruits. The local capacity of a group is a key driver of political violence (Limodio, 2022;Sviatschi, 2022), and a new entrant can directly reduce this capacity. A prominent frequency and severity of political violence (Findley and Young, 2012;Nemeth, 2014;Conrad and Greene, 2015).…”

“…The selection, in turn, reasonably depends on the strength of incumbent actors as well as attributes inert to the area in question. Prominent examples are weak state capacity (Fearon and Laitin, 2003), local financing opportunities (Berman et al, 2017;Limodio, 2022), and the attitude of the local population (Berman et al, 2011). Second, groups have varying goals and strategies, respond to different incentives, and might have diverse support groups (see Stanton, 2013;Kis-Katos et al, 2014;Toft and Zhukov, 2015).…”

The Welfare Effects of Law Enforcement in the Illegal Money Lending Market

“…2016; Galenianos and Gavazza, 2017;Leong et al, forthcoming), but is almost exclusively focused on drug markets. A few recent papers have tried to connect financing frictions with illegal activities, such as terrorism (Limodio, 2022), but none of these have direct access to illegal loan contracts. 9 Together with Lang et al (2022), we are the first to provide an empirical quantification of the market of illegal lending, leveraging unique and extensive survey data on a large fraction of illegal loan contracts in Singapore.…”