This chapter provides a comprehensive study of the economic determinants of transnational terrorism and the role that development plays in fostering a more peaceful world. We analyze models of conflict resolution to investigate the relative importance of economic development on domestic and transnational terrorism. We construct an original database from 1968 to 2003 for 179 countries in order to examine which economic factors influence the propensity to be affected by transnational terrorist activities. We also compare these results to a subsample from 1998 to 2003 on domestic terrorism. We find that economic development is associated with higher incidents of transnational terrorism, especially in higher income countries. However, when considering lower income countries, economic progress is actually negatively related to transnational terrorism.

Introduction

We live in the Age of Terrorism. Since the prominent incidents in high-income cities such as New York, Madrid, and London, and persistent terrorism in Middle Eastern countries such as Israel and Iraq, both academia and the media have become involved in a careful examination of the causes of terrorism. Terrorism is, however, neither new nor novel – indeed the very origin of the term dating back to the late 1700s points to a long history. Given its long history, we know surprisingly little about it. The purpose of this chapter is to begin to unravel the important linkages between economic development and the incidence of terrorism.