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Terrorism and subjective financial well-being: micro-level evidence from Pakistan

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Abstract

This paper exploits individual-level data on self-reported financial situations and district-level information on terrorist attacks in Pakistan to examine how persistent exposure to terrorism affects subjective financial well-being. The study also explores the relationship between recurrent terrorist acts and an individual’s perception of the financial well-being of other people in the community. Our model accounts for myriad influences of terrorism and financial statuses both at the individual and district levels. We find that terrorism adversely impacts subjective financial well-being. In particular, its negative effects on perceived personal financial conditions appear to be stronger for less-educated persons and those living in urban areas.

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Notes

  1. On the limitations of gross domestic product (GDP) as a measure of economic performance, and on social progress and the importance of SWB as influences on overall individual well-being, see Stiglitz et al. (2009).

  2. Using daily stock market data from 22 countries, Drakos (2010) shows that terrorist activity dampens investors’ sentiments, which leads to significantly lower returns on the day an attack occurs. Terrorism-induced stress also is found to reduce fertility (Berrebi and Ostwald 2015) and discourage female labor force participation (Berrebi and Ostwald 2016).

  3. Using Israeli individual-level survey data for the country’s Jewish population, Berrebi and Guedalia-Ephrat (2018) find that terrorism negatively affects the life satisfaction of secular people, but positively influences the life satisfaction of religious people. They hypothesize that, for the latter, religion could be a coping mechanism in the aftermath of terrorism.

  4. Fair et al. (2014) provide an in-depth analysis of the contemporary landscape of Islamist militancy in Pakistan.

  5. See Jaeger and Siddique (2018) on the effectiveness of drone strikes against militant groups in the FATA region.

  6. In our sample, nominal income ranges between 220 and 100,000 Pakistani rupees; however, we divide income by 1000 so that it ranges between 0.22 and 100. The household wealth index is captured by a simple average of the dummies for possession of assets like televisions, air conditioners, street lamps, home outdoor areas, computers, cell phones and cars. The information for district population density per square km comes from Rehman and Vanin (2017).

  7. Following Rehman and Vanin (2017), we also checked our results using an index of multiple deprivations, which is constructed from district-level information on education, health and housing variables. Our main finding mostly holds, but becomes less precise for some specifications. That change likely is explained by correlation between multiple deprivations and terrorism.

  8. The full results with and without holding the sample size constant are provided in the Online Appendix.

  9. The results of Akaike Information Criterion (AIC) and Bayesian Information Criterion (BIC) tests, not reported in the tables, decline as we add covariates in subsequent regressions, confirming the gain in efficiency with added variables.

  10. Low, medium and high levels of education correspond to up to five, between six and ten, and more than 10 years of education, respectively (Rehman and Vanin 2017).

  11. Data for both the instrumental variable and violent incidents come from Rehman and Vanin (2017).

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Acknowledgements

We are grateful to Todd Sandler and William F. Shughart II for their thoughtful comments. The article also benefited from comments by two anonymous reviewers and by participants at the 2018 Political Violence and Policy conference, University of Texas at Dallas. All remaining errors are ours.

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Authors and Affiliations

  1. Department of Economics, American University of Sharjah, P.O. Box 26666, Sharjah, UAE

    Khusrav Gaibulloev & Javed Younas

  2. Wylie, TX, 75098, USA

    Gerel Oyun

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  1. Khusrav Gaibulloev
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Correspondence to Javed Younas.

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Gaibulloev, K., Oyun, G. & Younas, J. Terrorism and subjective financial well-being: micro-level evidence from Pakistan. Public Choice 178, 493–512 (2019). https://doi.org/10.1007/s11127-018-0606-5

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