S. Brock Blomberg

How Much Does Violence Tax Trade

We investigate the empirical effect of violence, as compared to other trade impediments, on trade flows. Our analysis is based on a panel data set with annual observations on 177 countries from 1968 to 1999, which brings together information from the Rose data set, the iterate data set for terrorist events, and data sets of external and internal conflict. We explore these data with traditional and theoretical gravity models. We calculate that, for a given country year, the presence of terrorism together with internal and external conflict is equivalent to as much as a 30% tariff on trade. This is larger than estimated tariff-equivalent costs of border and language barriers and tariff-equivalent reduction through generalized systems of preference and WTO participation.

The Temporal Links between Conflict and Economic Activity

Data from 152 countries from 1950 to 1992 are used to estimate the joint determination of external conflict, internal conflict, and the business cycle. Results show that the occurrence of a recession alone will significantly increase the probability of internal conflict, and when combined with the occurrence of an external conflict, recessions will further increase the probability of internal conflict. These results are obtained from estimates of a Markov probability model in which transitions between states of peace and conflict influence each other and the state of the economy. Strong evidence emerges that the internal conflict, external conflict, and the state of the economy are not independent of one another. The results suggest that recessions can provide the spark for increased probabilities of internal and external conflict, which in turn raise the probability of recessions. Such dynamics are suggestive of a poverty-conflict trap-like environment.

Sustaining Fixed Rates: The Political Economy of Currency Pegs in Latin America

Government exchange rate regime choice is constrained by both political and economic factors. One political factor is the role of special interests: the larger the tradable sectors exposed to international competition, the less likely is the maintenance of a fixed exchange rate regime. Another political factor is electoral: as an election approaches, the probability of the maintenance of a fixed exchange rate increases. We test these arguments with hazard models to analyze the duration dependence of Latin American exchange rate arrangements from 1960 to 1999. We find substantial empirical evidence for these propositions. Results are robust to the inclusion of a variety of other economic and political variables, to different time and country samples, and to different definitions of regime arrangement. Controlling for economic factors, a one percentage point increase in the size of the manufacturing sector is associated with a reduction of six months in the longevity of a countryÂ’s currency peg. An im pending election increases the conditional likelihood of staying on a peg by about 8 percent, while the aftershock of an election conversely increases the conditional probability of going off a peg by 4 percent.

Is the Political Business Cycle for Real

This paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models. We augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities: First, that on average the economy expands early under Democratic Presidents and contracts early under Republican Presidents. Second, that Presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms. The model generates both of these features that conform to U.S. Post World War II data.

Politics and exchange rate forecasts

Standard exchange rate models perform poorly in out-of-sample forecasting when compared to the random walk model. We posit part of the poor performance of these models may be due to omission of political factors. We test this hypothesis by including political variables that capture party-specific, election-specific and candidate-specific characteristics. Surprisingly, we find our political model outperforms the random walk in out-of-sample forecasting at one to twelve month horizons for the pound/dollar, mark/dollar, pound/mark and the trade-weighted dollar, mark, and pound exchange rates.

From (No) Butter to Guns? Understanding the Economic Role in Transnational Terrorism

This paper provides a comprehensive study into 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 1968-2003 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 sub-sample from 1998-2003 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.

The Lexus and the Olive Branch: Globalization, Democratization and Terrorism

This paper provides an original study into how democratization and globalization influence terrorism - examining the motives of terrorists and how democratic institutions and international integration influence non-state economic actors. We employ a gravity model to investigate the relative importance of globalization and democratization on transnational terrorism. We construct an original database of over 200,000 observations from 1968-2003 for 179 countries, to examine the extent to which economic, political and historical factors influence the likelihood of citizens from one country to engage in terrorist activities against another. We find that the advent of democratic institutions, high income and more openness in a source country significantly reduces terrorism. However, the advent of these same positive developments in targeted countries actually increases terrorism. Ceteris paribus, the impact of being a democracy or participating in the WTO for a source country decreases the number of transnational terrorist strikes by about 2 to 3 per year, which is more than two standard deviations greater than the average number of strikes between any two countries in a given year.

On the Duration and Sustainability of Transnational Terrorist Organizations

This article aims to improve scholars’ understanding of how transnational terrorist organizations emerge, survive, thrive, and eventually die.The authors use a data set that catalogues terrorist organizations and their attacks over time (the ITERATE database of thousands of terrorist events from 1968 through 2007) and merge those data with socioeconomic information about the environment in which each attack occurs. They use these data to trace the life cycle pattern of terrorist activity and the organizations that perpetrate them. They identify at least two types of terrorist organizations— recidivists and one-hit wonders. The authors find that recidivist organizations, those that have repeatedly attacked, are less likely to survive once political and socioeconomic factors have been included. However, they find that sporadic or one-hit wonders are not easily deterred by socioeconomic factors, leaving open a role for counterinsurgency tactics.

The Impact of Voter Initiatives on Economic Activity

This paper investigates the implications of how states with initiative systems of legislation can use this more direct form of democracy to improve productive resource allocation by their goverments. We construct a simple growth model whereby we can identify this channel through which initiatives play an important role in determining economic activity.

International Terrorism: Causes, Consequences and Cures

A popular view is that international terrorism is on the increase, that it is religiously motivated and that it has important adverse consequences. This paper investigates this view. It examines the empirical evidence on the causes of international terrorism from the late 1960s to the early 2000s and discovers that, while religion has had a part to play, explanations based on economics and politics appear to be consistent with the facts. Terrorists come from relatively poor and undemocratic countries and commit attacks in relatively rich and democratic ones. The paper then examines the micro, macro and global economic effects of international terrorism from both a theoretical and empirical angle, and discovers that the negative effect on domestic aggregate demand is temporary and the effect on aggregate supply insignificant. Finally, the paper explores policies to deal with international terrorism and demonstrates that this is complex. Analogies with conventional crime may be unhelpful.