An analysis of a causal relationship between economic growth and terrorism in Pakistan

The present study investigates the causal relationship between terrorism and economic growth in Pakistan by incorporating capital and trade openness in production function. The study covers the time period of 1973-2010. The ARDL bound testing approach has been applied to cointegration to examine the long-run relationship between terrorism and economic growth. The VECM Granger causality approach is used to test the direction of causality between terrorism and economic growth. Our empirical results confirm the existence of long-run relationship between terrorism and economic growth. The Granger causality analysis indicates that terrorism is Granger cause of economic growth. The feedback effect is found between terrorism and trade openness. The relationship between terrorism and capital is bidirectional.