Assessing the Impact of Terrorism in Trade Development in the SADC Region: A Gravity Model Approach

Abstract

The South African Development Community (SADC) was formed with the objective of achieving development, peace and security, and economic growth but terrorism has been a major obstacle. This paper captured terrorism as a trade cost to bilateral trade in the region. The PPML technique was used for the analyses because of its robustness, consistency and ability to capture zero trades and appropriate fixed effects. Our analyses revealed that, terrorism must have caused an increase in bilateral trade in the region and were dependent on the level of income of trading partners. Trade with low-and medium-income countries were positively influenced by terrorism primarily because their production capacity must have been damaged by terrorism and the only way to augment domestic demand was to depend on international trade. But the region’s trade with high-income countries was negatively affected by terrorism. Partly because their capacity to produce for export must have been affected and raising insurance premiums for goods that are shipped to higher-risk nations may also hinder trade. Based on the coefficients, the impacts of terrorism on bilateral trade appear very small but not negligible.