Where Developing Nations Prone to Transnational Terrorism Stand in Foreign Aid and FDI

Many developing nations receive foreign aid from other nations and from multilateral organizations like the World Bank.In this analysis, the term developing nations refers to nations other than high-income countries as defined by the World Bank (2023 gross national incomes per capita exceeding $14,005). While donor nation interests have traditionally focused on humanitarian reasons such as poverty alleviation, strategic interests such as containment of terrorism increased in importance in the 2000s.See Khusrav Gaibulloev and Todd Sandler’s June 2019 article, “What We Have Learned about Terrorism since 9/11,” in the Journal of Economic Literature. For example, if a developed nation has economic interests in a terror-prone developing nation, it may want to aid the host government to contain terrorism, which will in turn safeguard the developed nation’s assets. The risk to developed nations’ assets in developing nations is especially relevant when the level of transnational terrorism in developing nations is high.Transnational terrorism refers to terrorism incidents where perpetrators, victims or institutions involve multiple nations. By definition, an attack on any foreign interest in a developing nation constitutes an incident of transnational terrorism. Similarly, nations prone to transnational terrorism are less likely to attract foreign investors, dampening foreign direct investment (FDI).See Section 7.6 of the article by Khusrav Gaibulloev and Todd Sandler for a discussion of foreign direct investment and terrorism.

Keeping these issues in mind, this blog post first identifies the top 25 venues of transnational terrorism among developing nations, ranked by total number of transnational terror incidents in the 2000-21 period.Data are from the Global Terrorism Database, which is maintained by the National Consortium for the Study of Terrorism and Responses to Terrorism. The open-source database includes information on worldwide terrorism events from 1970 through 2021, its most recent data point. An act must meet several criteria for it to be considered by the database as a terrorism incident exclusively (PDF). Next, we examine how these nations’ average annual foreign aid receipts align with the average annual number of transnational terrorism incidents that they experienced.Data on foreign aid receipts are from the Organization for Economic Cooperation and Development. The data provide aggregate statistics on the geographical distribution of bilateral and multilateral disbursements of official development assistance to developing economies from 1960 to 2023. Finally, we consider the relationship between these nations’ net FDI inflows and transnational terrorism incidents.Data on net FDI inflows are from World Development Indicators, a database maintained by the World Bank.

Developing Nations with the Largest Number of Transnational Terrorism Incidents

The figure below lists the 25 developing nations with the largest total numbers of transnational terrorism incidents over the 2000-21 period (referred to as selected nations from this point on).We do not include the territories of Gaza and West Bank in this list. Most of the nations listed are from Africa, the Middle East and South Asia. Topping the list are Afghanistan and Iraq, both of which experienced much conflict and international military intervention in the 2000s.

Top 25 Developing Economies Ranked by Transnational Terrorism Incidents

SOURCES: Global Terrorism Database, World Bank and authors’ calculations.

Transnational Terrorism and Foreign Aid

The next figure makes use of logarithmic scale, presenting:

• The log of average annual transnational terrorism incidents on the vertical axis.
• The log of adjusted average annual foreign aid received by the selected nations on the horizontal axis. Since some of the net aid received over the 2000-21 period is negative, and since we use log numbers, we adjusted the horizontal axis such that the lowest net aid is normalized to a log value of zero.According to a World Bank Data Help Desk answer, “Aid and aid per capita data show the net value of official development assistance (ODA). Thus, if countries pay back more than they receive, they can show negative values of net aid.” Also, see the notes below the second figure about our adjustment of the horizontal axis.

The two selected nations with the highest number of transnational terrorism incidents, Afghanistan and Iraq, received the most foreign aid after Syria. Pakistan also saw a large number of transnational terrorism incidents and received large amounts of aid. On the other hand, Algeria, Sri Lanka and Thailand all had relatively low levels of transnational terrorism and foreign aid receipts.

Foreign Aid Receipts among the Selected Nations

SOURCES: Global Terrorism Database, World Bank, Organization for Economic Cooperation and Development and authors’ calculations.

NOTES: We rescaled the horizontal axis by adding 1+0.0330246 U.S. dollars (in billions) to all the selected nations, such that Thailand’s average aid after the adjustment is 1. Thailand’s initial average aid was -$0.0330246 billion. Among the selected nations, Thailand received the least net foreign aid.

Transnational Terrorism and Foreign Direct Investment

The relationship between transnational terrorism and FDI is displayed in the figure below, which replicates the vertical axis from the figure above while measuring average annual net FDI on the horizontal axis. As with the prior figure, some of the net FDI inflows are negative, and we have accordingly adjusted the horizontal axis.According to a World Bank Data Help Desk answer, “FDI flows with a negative sign indicate that at least one of the components of FDI is negative and not offset by positive amounts of the remaining components. These are instances of reverse investment or disinvestment.” Also, see the notes below the third figure regarding our adjustment of the horizontal axis.

With the exception of Pakistan, the top 5 nations for transnational terrorism show very low levels of FDI. Among the other selected nations, FDI ranges from very low levels (for nations like Nepal and South Sudan) to high levels (for countries like India and Indonesia). Overall, the figure below suggests that while very high levels of transnational terrorism are broadly associated with low levels of FDI, the FDI-terrorism relationship is generally unclear.

Patterns of Net Foreign Direct Investment among the Selected Nations

SOURCES: Global Terrorism Database, World Bank and authors’ calculations.

NOTES: We rescaled the horizontal axis by adding 1+1.731685 U.S. dollars (in billions) to all the selected nations, such that Iraq’s average net FDI inflow after the adjustment is 1. Iraq’s initial average net FDI inflow was -$1.731685 billion. Among the selected nations, Iraq received the least net FDI.

Conclusion

The existing literature generally finds a positive relationship between foreign aid and transnational terrorism and a negative relationship between FDI and transnational terrorism. Selected nations identified in this blog post align fairly well with the proposed positive foreign aid-terrorism relationship, but exhibit greater ambiguity vis-a-vis the FDI-terrorism connection.

Notes

1. In this analysis, the term developing nations refers to nations other than high-income countries as defined by the World Bank (2023 gross national incomes per capita exceeding $14,005).
2. See Khusrav Gaibulloev and Todd Sandler’s June 2019 article, “What We Have Learned about Terrorism since 9/11,” in the Journal of Economic Literature.
3. Transnational terrorism refers to terrorism incidents where perpetrators, victims or institutions involve multiple nations. By definition, an attack on any foreign interest in a developing nation constitutes an incident of transnational terrorism.
4. See Section 7.6 of the article by Khusrav Gaibulloev and Todd Sandler for a discussion of foreign direct investment and terrorism.
5. Data are from the Global Terrorism Database, which is maintained by the National Consortium for the Study of Terrorism and Responses to Terrorism. The open-source database includes information on worldwide terrorism events from 1970 through 2021, its most recent data point. An act must meet several criteria for it to be considered by the database as a terrorism incident exclusively (PDF).
6. Data on foreign aid receipts are from the Organization for Economic Cooperation and Development. The data provide aggregate statistics on the geographical distribution of bilateral and multilateral disbursements of official development assistance to developing economies from 1960 to 2023.
7. Data on net FDI inflows are from World Development Indicators, a database maintained by the World Bank.
8. We do not include the territories of Gaza and West Bank in this list.
9. According to a World Bank Data Help Desk answer, “Aid and aid per capita data show the net value of official development assistance (ODA). Thus, if countries pay back more than they receive, they can show negative values of net aid.” Also, see the notes below the second figure about our adjustment of the horizontal axis.
10. According to a World Bank Data Help Desk answer, “FDI flows with a negative sign indicate that at least one of the components of FDI is negative and not offset by positive amounts of the remaining components. These are instances of reverse investment or disinvestment.” Also, see the notes below the third figure regarding our adjustment of the horizontal axis.