Terrorism and foreign direct investment in Spain and Greece

This paper puts forward a time-series methodology for quantifying the impact that terrorist incidents have had on net foreign direct investment(NFDI) in Spain and Greece. For Spain, a transfer function is used for quantification purposes, while, for Greece, a VAR model is employed. Terrorism had a significant and persistent negative impact on NFDI: a year's worth of terrorism discouraged NFDI by 13.5% annually in Spain and by 11.9% annually in Greece. The cumulative effect on foreign-held capital is also indicated. This study shows that some smaller countries that face a persistent threat of terrorism may incur economic costs in the form of reduced investment and, hence, growth.