Niehoff 1

Kyle Niehoff
Grove City College
B.A. Political Science 2016

May 2014

The prevalence of terroristic activity in the late 20
th
century and into the 21
st

century has encouraged more research into the causes and effects of terrorism. Domestic
terrorism, distinct from transnational terrorism, may itself have a unique adverse effect on
the condition of a state. In particular, the member states of the Association of Southeast
Asian Nations (ASEAN) have been seen the rise of domestic terrorist cells within
ASEAN member states. As the psychological effects, political effects and cultural effects
of terrorism dominate political rhetoric and media headlines, the economic effect of
terrorism tends to be overlooked. What is the economic effect of domestic terrorism on
ASEAN member states? The majority of scholars agree that domestic terrorism will have
some sort of negative effect. Differences between scholars arise with disagreements over
the extent of the effect of domestic terrorism on economies. Further differences arise over
the definition of and understanding of domestic terrorism.
Defining Domestic Terrorism
Domestic terrorism as a subsection of global terrorism must be defined.
Understanding domestic terrorism as a distinct type of terrorism, allows for a more clear
understanding of what can and should be measured during analysis. The best way to
approach a proper definition of domestic terrorism is to define terrorism in general and
then assess how these general concepts apply or do not apply to domestic terrorism.
General definitions of terrorism are numerous but most can agree upon several
basic tenets. From these definitions come basic theories as to the effects of terrorism.
Niehoff 2

Terrorism is usually defined as the premeditated use or threat to use violence by
individuals through the intimidation of a large audience beyond that of the immediate
victims (Gaibulloev and Sandler, Asia 362). What is significant about this definition is
that the aim of a terrorist act or threat is not limited to the target of the act or subject of
the act. A wider political message or social message to a larger population, national or
international, is ultimately the goal of the threat or act. The threat or act is all about
gainshow can the threat or action result in a political advantage or a material advantage
to the perpetrating group or perpetrating individual. When terrorism takes the form of
terroristic acts, the attacks must be against civilians, officials, or non-combatants to be
defined as terrorism (Enders, Sandler, Gaibulloev 2011, 321). The negative consequences
of terrorism are wide ranging and can include political consequences, social
consequences and economic consequences. For the sake of this project the focus will be
economic consequences, but it is important to understand that terrorism is not limited to
its effect on economies. In regards to the economic consequences of terrorism, Enders
and Olson, in their study Measuring the Economic Costs of Terrorism, purport that
terrorism has both direct economic costs (disrupting commerce, destroying infrastructure,
killing people) and indirect economic costs (diverting foreign investment, disrupting
international trade) (Ender and Olson 2009, 16-17). As will be discussed later, specific
studies on the economic effect of terrorism verify these claims of the adverse economic
effect of terrorism, but it is generally held that terrorism at least has the potential to cause
economic damage. Enders and Olson look at the basic numbers reported on the impact of
the attacks on America on September 11, 2001 that show the direct economic cost to have
been $80 billion -$90 billion, and the indirect economic estimated to have been as much
Niehoff 3

$1.7 trillion (8). Since the goal of the terrorists is to send a broad message, if that goal is
met, theorizing that the act can have an effect on economic elements is both reasonable
and widely-held (Meierrieks and Gries 2013, 95). Having established the general
definition of terrorism and seen the theory of its economic costs, further dividing
terrorism into distinct subcategories will allow for a clarification of the instances of
terrorism that are uniquely domestic.
The difficulty in defining, and subsequently measuring, domestic terrorism is that
the definition of domestic terrorism is difficult to narrow down. Before delving into the
detailed definition of domestic terrorism that will be adopted for this project, logical
assumptions can be made about domestic terrorism. Terrorism is commonly split into
the subcategories of domestic terrorism and transnational terrorism (Gaibulloev and
Sandler 2009, 362). Since the definition of terrorism has been established already, the
discussion turns to the definition of domestic, as opposed to transnational. The Oxford
English Dictionary defines domestic to mean indigenous; made at home or in the
country itself; native, home-grown, home-made (domestic, adj). By using the
aforementioned definition of terrorism and this definition of domestic, it is reasonable to
define domestic terrorism as: the premeditated use or threat to use violence by
individuals native to the country in which the act is conducted, through the intimidation
of a large national audience beyond that of the immediate national victims. This basic
definition is supported and expanded upon by Enders, Sandler and Gaibulloev who define
domestic terrorism as . . . homegrown in which the venue, target, and perpetrators are all
from the same country (Enders, Sandler and Gaibulloev 2011, 321). Thus, domestic
terrorism has direct consequences for only the venue country, its institutions, citizens,
Niehoff 4

property and policies (321). Domestic terrorisms primary goal is to impact the state in
which the act of terror is conducted. The attack may result in international attention,
international intervention, or even indirect international economic consequences, but if
the group originates in the state, terrorizes within the state, and impacts the people,
government and/or infrastructure of the state, then the terrorism is domestic. This
understanding of domestic terrorism will be employed throughout the rest of the project.
Having established an understanding of the definition of terrorism, and the distinction of
domestic terrorism as a subsection of terrorism, within the existing literature are many
studies worth examining that measure the economic impact of terrorism.
The Economic Consequences of Terrorism
While the focus of this project is the economic impact of domestic terrorism,
existing research points to the ability of terrorism on as a whole to effect economies.
Aspects of this research will help understand the impact domestic terrorism can have on
economies. The global issue of terrorism includes acts of domestic terrorism and acts of
transnational terrorism, and studies of terrorism as a whole show that terrorism does have
an adverse effect on economic elements.
Nicole Crain and Mark Crains study titled Terrorized Economies, measures the
impact of terrorism on GDP, GDP growth, investment, consumer spending and tourism
(Crain and Crain 2006, 317). The ITERATE data series, which includes measures of
11,273 global terrorist incidents since 1968, was used to measure the economic impact of
terrorism worldwide (319). While the study does not distinguish or analyze the effects of
domestic terrorism as opposed to transnational terrorism, the study does show that
terrorism in general should not be overlooked as a threat to any economy. Based upon the
Niehoff 5

produced models, Crain and Crain found that if all the terrorists incidents that occurred in
2002 did not occur, then world total world GDP would have been $3.6 trillion higher than
it actually was in 2002 (336). By simply removing one variable, terrorism, the global
economy would not have suffered a multi-trillion dollar loss in GDP. This study
establishes the relevance of terrorism as a detrimental force to economies as a whole.
Other studies have examined specific areas of the economic effect terrorism, providing
more insight into the potential causal relationship between terrorism and growth.
Volker Nitsch and Dieter Schumacher conducted a study titled Terrorism and
Trade, in which the effect of terrorism on bilateral trade from 1960 to 1993 was
measured. Nitsch and Schumacher found that states who have a higher level of terrorist
activity, occurring within their borders, trade much less than states unaffected by
terrorism (Nitsch and Schumacher 2003, 8). Overall, based upon the produced models,
Nitsch and Schumacher estimate that a doubling in the number of terrorist incidents a
year is a ssociated with a decrease in bilateral trade by about 4 percent in the same year
(10). Trade between states is essential for a vibrant economy, and terrorism is shown to
harm this vital element of economic growth.
The Meierrieks and Gries study Causality Between Terrorism and Economic
Growth, provides insight into the change in the causal relationship between total
terrorism and economic growth after the end of the Cold War. After running models
using the Global Terrorism Database, Meierrieks and Gries found that prior to the Cold
War, economic growth had a causal effect on terrorism, but terrorism did not have a
causal effect on economic growth (Meierrieks and Gries 2013, 98). After the Cold war,
the models show that terrorism causally influences economic growth, but economic
Niehoff 6

growth does not causally influence terrorism (98). So the results were flipped from before
the Cold War, to after the Cold War. While this research shows that the causal
relationship between total terrorism and economic growth has changed over the past
several decades, the specifics of why the change occurred provides insight into for my
study of ASEAN member states. Meierrieks and Gries conclude that the change occurred
because . . . the post-Cold War era saw a geographical shift in terrorism towards regions
characterized by comparatively lower levels of economic development, weaker
institutions and chronic instability (Meierrieks and Gries 2013, 103). When conducting
analysis on the effect of terrorism within states, it is important to remember that the
domestic condition of the state matters and must be taken into consideration.
The Sandler and Enders study Economic Consequences of Terrorism in
Developed and Developing Countries corroborates the results of the Meierrieks and
Gries study. Overall, the Sandler and Enders study found the economic consequences of
terrorism are generally very modest and short-lived . . . and should have very localized
economic effects (Sandler and Enders 2009, 29-30). Domestic terrorism is focused on
sending a message and having an effect within the state that they operate. Based upon
these findings that the effects of terrorism are generally localized, models on the effect of
domestic terrorism may show more of an exclusive effect of domestic terrorism on
individual ASEAN states. Sandler and Enders also found that The likely candidate
countries for noticeable macroeconomic impacts are either developing or small countries
that experience a protracted terrorist campaign (30). When measuring the effects of
domestic terrorism on the individual states of ASEAN, these results that deem developing
countries to be more prone to macroeconomic impacts will be important to note.
Niehoff 7

A 2009 study by Gaibulloev and Sandler, The Impact of Terrorism and Conflicts
on Growth in Asia, gives important insights into the effect of terrorism within the region
of Asia that corroborates the previous studies claims regarding the difference in
economic impact based upon existing economic conditions. In measuring terrorist events
from 1974-2004, Gaibulloev and Sandler found that developed Asian countries show
little to no economic growth reduction as a result of transnational terrorism, while
transnational terrorism reduced per capita GDP for developing Asian countries
(Gaibulloev and Sandler 2009, 379). This study further shows the importance of at least
recognizing the existing conditions of states. For Asia specifically, this study provides
important insight. While this is a study of transnational terrorism, it is nonetheless
apparent that developing Asian states are more prone to the adverse economic effects of
terrorism. Focusing research on specific areas is important when measuring domestic
terrorism. The effect of domestic terrorism in general, and the effect of domestic
terrorism on individual regions have also been analyzed within the existing literature.
The Economic Impact of Domestic Terrorism
All the studies that have been discussed up to this point do not make any
distinction between transnational/global/international terrorism and domestic terrorism.
Acts of domestic terror are included in the calculations, but are not given special
attention. The studies are still important in establishing evidence of the general economic
impact of terrorism. How these impacts translate to the effect of domestic terrorism
specifically must be shown. In order to make them relevant to a study of domestic
terrorism, it must be shown that the very same elements terrorism as whole effects
internationally, domestic terrorism effects domestically. The existing literature suggests
Niehoff 8

that it is essential, when conducting research on domestic terrorism, to focus on specific
regions and to not overlook domestic factors that influence the effect of domestic
terrorism. Several studies have examined these issues and provide results that aid in the
overall goal of this project.
Enders, Sandler and Gaibulloevs 2011 study, Domestic Verse Transnational
Terrorism, provides key insight into both defining and measuring domestic terrorism.
The early definition of domestic terrorism relied, in part, upon the definition of domestic
terrorism in this study. By firmly defining terror as domestic, employing factors such as
the nationality of the victims in relation to venue country and the types of targets, this
study was able to create a dataset from the existing Global Terrorism Database that
could accurately measure the unique effects of domestic terrorism (Enders, Sandler and
Gaibulloev 2011, 324). Based upon this premise and that data constructed, studies of
specific occurrences of domestic terrorism were done to further analyze the results of
Domestic Versus Transnational Terrorism project.
Along with the Domestic Versus Transnational Terrorism study, Sandler and
Gaibulloev conducted specific studies on Africa and Western Europe. These specific area
studies show that an all-encompassing study of the effect of domestic terrorism on state
economies does not allow for sound analysis. The study on Africa found that
transnational terrorism has an adverse effect on growth in Africa, while domestic
terrorism had no effect on growth in Africa (Gaibulloev and Sandler 2011, 366). If this
study were to be taken as conclusive of all cases of domestic terrorism, then it would
seem that domestic terrorism has little to no effect on the economy. The study on Western
Europe did not follow the study on Africa. The study on Western Europe found that
Niehoff 9

transnational terrorist events from 1971-2004 reduced economic growth by .4%, while
domestic terrorist events from 1971-2004 reduced economic growth by .2% (Gaibulloev
and Sandler 2008, 422). Researchers must be careful not to place too much credibility on
wide-reaching studies of domestic terrorism. The difference in result from these two
studies shows that the effect of domestic terrorism ranges from region to region.
The 2001 Abadie and Gardeazabal study titled The Economic Consequences of
Conflict: A Case-Control study for the Basque Region, purports that domestic terrorism
within the Basque region has an adverse effect on GDP per capita. Abadie and
Gardeazabals model shows 10% average gap between Basque per capita GDP and the
per capita GDP of a comparable synthetic region without terrorism which emerges over a
period of two decades (Abadie and Gardeazabal 2003, 14). Per capita GDP is a proper
measure of the effect domestic terrorism can have on individual citizens. The study also
showed that as the intensity of the terrorist attack increased, the per capita GDP would
decrease. These results are different from that of both the Africa study and the Western
Europe study. Abadie and Gardeazabals study is further evidence that regional studies
must be favored when an analysis of domestic terrorism is conducted.
James A. Piazzas project, Poverty, Minority Economic Discrimination, and
Domestic Terrorism, argues that the condition of individual states greatly affects the
amount of domestic terrorism, and therefore the significance of the effect of domestic
terrorism. Piazzas study concluded that The empirical results show that countries that
permit their minority communities to be afflicted by economic discrimination make
themselves more vulnerable to domestic terrorism in a substantive way (Piazza 2011,
350). Piazzas study further cements the importance of taking into account existing
Niehoff 10

conditions when measuring domestic terrorism. When considering the economic effect of
domestic terrorism on ASEAN member states, it will be important to note these findings.
Hypotheses
Hypothesis 1: An increase in the amount of domestic terrorism in an ASEAN
member state will cause a decrease in gross domestic product.

Hypothesis 2: An increase in the amount of domestic terrorism in an ASEAN
member state will cause a decrease in gross domestic product per capita.

Hypothesis 3: An increase in the amount of domestic terrorism in an ASEAN
member state will cause a decrease in foreign investment.

Based upon the general theories regarding domestic terrorism and the findings of
previously conducted studies, I can arrive at this hypothesis. Terrorism by definition
seeks to send a political or social message, but intrinsic to this message is a desire to gain
somethingmaterial, political, religious, social etc. In theory, terrorists, in trying to gain
something from an attack, can cause both direct economic damage and indirect economic
damage to the target(s) of the attack. From the existing literature can be drawn important
findings that make my hypothesis legitimate. Terrorism in general has the potential to
have an adverse economic effect on measurable factors such as GDP, GDP per capita and
trade flows (Crain and Crain 2006 , Enders and Olson 2009, Nitsch and Shumacher
2003). Further studies stressed the importance of recognizing the existing economic
conditions of states that are afflicted with both transnational and domestic terrorism prior
to engaging studies on terrorism (Meierrieks and Gries 2013, Sandler and Enders 2009,
Gaibulloev and Sandler 2009, Piazza 2011). The differences in the two Gaibulloev and
Sandler studies on Africa and Western Europe in regards to domestic terrorism
encouraged this study to not definitively rely on other studies of domestic terrorism as
definitive of all cases of domestic terrorism (Gaibulloev and Sandler 2009, Gaibulloev
Niehoff 11

and Sandler 2008). Sandler and Enders confirmed that developing countries are the most
prone to the adverse economic effects of terrorism (Sandler and Enders 2009). Based
upon the Sandler and Enders study the odds of domestic terrorism occurring in a
developed nation are low, so conducting a study on the effect of domestic terrorism on a
region of developed nations should show a limited economic effect of domestic terrorism.
Conducting a study of domestic terrorism on the member states of ASEAN is a legitimate
study because the majority of ASEAN member states are developing nations. Two
separate organizations, The International Statistics Institute (ISI) and the International
Monetary Fund (IMF) rank 9 of the 11 ASEAN states as developing states: Philippines,
Indonesia, Laos, Cambodia, Malaysia, Thailand, Timor-Leste, Myanmar and Vietnam are
all listed as developing nations (World Economic Outlook 2014, ISI Developing
Countries 2013). If any sort of domestic terrorism exists in the ASEAN member states,
based upon the studies mentioned earlier, domestic terrorism could cause an adverse
change to economic factors in the states being measured. But as has been seen the
economic consequences of domestic terrorism are not uniform (Gaibulloev and Sandler
2008, Gaibulloev and Sandler 2009). While the result is not guaranteed, the results of
other studies encourage an examination of another region, Southeast Asia, and the
economic effect of domestic terrorism on states in the region.
Data Used
In order to form an accurate model for my hypotheses, data was drawn from three
separate datasets: the International Monetary Funds World Economic Outlook Database,
the World Banks Foreign Direct Investment Dataset, and the Global Terrorism Database.
Data from these three sets were extracted to measure all eleven ASEAN member states:
Niehoff 12

Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore,
Thailand, Timor-Leste and Vietnam. The time frame of this study is 1995 to 2012. An 18
year timeframe allows for a large, yet manageable, sample of data for analysis. All of
these datasets were filtered and recoded to measure the desired data variables. The
specifics as to why variables were chosen to measure my hypothesis will be addressed
later. First, the quality of the raw data borrowed for this project will be examined.
To measure the amount of domestic terrorism in an ASEAN member state, the
Global Terrorism Database (GTD) was used. The GTD is compiled by the National
Consortium for the Study of Terrorism and the Responses to Terrorism (START).
START defines the GTD as a comprehensive, methodologically robust set of
longitudinal data on incidents of domestic and international terrorism (National
Consortium. . .2012, 1). Using a region code that only included Southeast Asian state,
data on total, both domestic and transnational, terrorism that occurred within ASEAN
member states from 1995 to 2012, was extracted from the dataset (18-19). As will be
addressed later, four variables were extracted from the GTD and were recoded into
ordinal variables to measure the magnitude of a domestic terrorist attack. Since this
dataset includes all incidents of terrorism, domestic and transnational, the data had to be
altered to only include incidents of domestic terrorism.
In order to only measure instances of domestic terrorism in the eleven ASEAN
member states, a filter was placed on the data that eliminated all incidents that had any
aspect of international terrorism associated with the incident. As stated earlier in the
project, distinguishing domestic terrorism from international/transnational terrorism is
essential to only measure acts of domestic terrorism. Earlier, domestic terrorism was
Niehoff 13

defined as the premeditated use or threat to use violence by individuals native to the
country in which the act is conducted, through the intimidation of a large national
audience beyond that of the immediate national victims. To successfully measure the
unique impact of domestic terrorism on GDP, GDP per capita and direct foreign
investment, this definition of domestic terrorism must apply to the incidents selected
from the GTD for usage. The START GTD has a variable within the dataset labeled
InternationalAny of the Above (National Consortium 2012, 57). This variable
combines any logistical international characteristics, ideological international
characteristics or miscellaneous international characteristics, to determine the overall
characteristic of the attack as international or domestic. Logistical international
characteristics indicate whether a perpetrator group crossed a border to carry out the
attack (55). Ideological international characteristics indicate whether or not a
perpetrator group attacked a target of a different nationality (56). Miscellaneous
international characteristics indicate whether a perpetrator group attacked a target of a
different nationality (56). All three of these variables had values of 0 and 11=yes,
0=no. The InternationalAny of the Above variable combined these three variables
together to determine the nature of the attackeither domestic or international. So if the
InternationalAny of the Above variable was equal to 1, the event was an act of
international terrorism, and if the InternationalAny of the Above variable was equal
to 0, the event was an act of domestic terrorism. InternationalAny of the Above was
recoded as International attack or domestic attack so that 0=domestic terrorism and
1=international terrorism. This variable was then used as a filter to eliminate all acts of
international terrorism. After the filter was applied, the total N of cases dropped from
Niehoff 14

4768 total acts of terrorism, to 1394 total cases of domestic terrorism. As a result of the
filter, only seven of the total eleven ASEAN member states incurred an act of domestic
terrorism from 1995-2012. Brunei, Singapore, Timor-Leste and Vietnam did not incur
any domestic terrorist attacks during the timeframe of analysis. These states were not
simply eliminated from analysis, for all ASEAN states are subject to analysis in this
project, and were still included in the project (how they were included will be addressed
later). The recoded International attack or domestic attack variable used as a filter is a
satisfactory instrument to distinguish domestic terrorism because it removes incidents
that have any hint of international influence. To measure the economic effect of the 1394
domestic terrorism incidents in ASEAN member states from 1995-2012, datasets that
include GDP, GDP per capita and direct foreign investment were used.
Yearly gross domestic product, yearly gross domestic product per capita and
yearly direct foreign investment were all gathered in order to measure economic factors
that may be impacted by domestic terrorism. Twice a year, the International Monetary
Fund (IMF) conducts a survey that measures various economic indicators, resulting in the
World Economic Outlook (WEO) dataset. The WEO dataset used in this study was
published in April of 2014 and the specific data drawn from the dataset were GDP and
GDP per capita of all eleven ASEAN member states from 1995 to 2012 (World
Economic Outlook, 2014). Both GDP and GDP per capita are measured in current U.S.
dollarsGDP in billions of U.S. dollars, GDP per capita in individual U.S. dollar units
(2014). Data on foreign direct investment into ASEAN member states from 1995-2012
was gathered from the World Banks dataset on Foreign Direct Investment, Net Inflows
(current US$). According to the World Bank website, most World Bank economic data
Niehoff 15

comes from the statistical systems of member countries, and the quality of global data
depends on how well these national systems perform (Foreign Direct2014). World
Bank data is generally held to be reliable, but the fact that numbers are, for the most part,
submitted by member states must be noted. Assuming that no government numbers are
perfect, there is a chance that not all numbers are completely accurate. Overall, both IMF
data and World Bank data are reliable and are used to measure the economic effect of
terrorism in the models.
The Dependent Variables
Three dependent variables, were created to measure the economic effect of
domestic terrorism. Often mentioned in the project thus far has been the phrase
economic effect. What exactly is meant by economic effect is what will be measured
in the dependent variables. GDP, GDP per capita and foreign direct investment were all
chosen as measures of economic effect based upon the general concepts of the
consequences of terrorism and the conclusions of the existing literature. As stated earlier,
domestic terrorism is held to be conducted by groups that are native to, and operate
within, the state in which the act of terror is carried out. A domestic terrorist attack can
have a potential adverse effect on three economic aspects within the state: the
government of the state, the individual citizens of the state and the economic
infrastructure of the state. To measure the economic effect of domestic terrorism on the
government of ASEAN member states, the GDP of the state is the dependent variable in
Model 1. Studies have shown that terrorism as a whole can have an impact on both world
GDP growth, individual state GDP growth and individual region GDP growth (Crain and
Crain 2006). To measure the economic effect of domestic terrorism on the citizens of an
Niehoff 16

ASEAN member state, GDP per Capita is the dependent variable in Model 2. GDP per
capita is not a flawless indicator of the economic condition of the populous, but GDP per
capita does provide an appropriate variable to measure potential fluctuation in economic
growth that affects the citizens directly. Abadie and Gardeazabals study on the Basque
region concluded that an increase in domestic terrorism severity in the Basque region
caused a decrease in GDP per capita in the region (Abadie and Gardeazabal 2003). To
measure the economic effect of domestic terrorism on the economic infrastructure of an
ASEAN member state, direct foreign investment is the dependent variable of Model 3.
Direct foreign investment is necessary for the infrastructure to experience consistent
growth and development. Nitsch and Schumachers study revealed that terrorism can also
have an adverse effect on trade and investment into state in which acts of terror are
occurring (Nitsch and Schumacher 2003). All together these variables measure three
separate, yet related, economic factors in three separate models to accurately measure any
potential economic effect, positive or negative, of domestic terrorism on Southeast Asian
economies.
All three of these variables of economic effect were recoded into ordinal measures
for the sake of measurement. Prior to creating the ordinal variables, all three were all
adjusted to produce a one year lag. The lags that resulted, subtracted from the original
GDP data, resulted in three new variables that measured the change in GDP, GDP per
capita and foreign direct investment from the year before. This change in measure is
necessary because my hypotheses purport that domestic terrorism will cause a decrease in
the selected economic factors, but any potential change will have been caused by the acts
of domestic terror that occurred the year before. By assessing the change in economic
Niehoff 17

factors from previous years, the effect of domestic terrorism that occurred in the previous
year can be measured. The new variables, change in GDP from the previous year,
change in GDP per capita from the previous year and change in direct foreign
investment from the previous year, were then recoded into three separate ordinal
variables. Any decreases in GDP from the previous year, GDP per capita from the
previous year, or foreign investment from the previous year were given the value of 1 and
were labeled as negative change. Any increases in GDP from the previous year, GDP
per capita from the previous year, or foreign investment from the previous year were
given the value of 2 and were labeled as positive change. If no change from the
previous year existed in any of the three variables then a value of 0, or no change.
Figure 1. Change in GDP from the Previous Year
Frequency Percent Valid Percent Cumulative
Percent
Valid
No Change 1318 89.9 96.1 96.1
Negative Change 12 .8 .9 97.0
Positive Change 41 2.8 3.0 100.0
Total 1371 93.5 100.0

Missing System 95 6.5

Total 1466 100.0



Figure 2. Change in GDPPC from the Previous Year
Frequency Percent Valid Percent Cumulative
Percent
Valid
No Change 1318 89.9 95.6 95.6
Negative Change 17 1.2 1.2 96.8
Positive Change 44 3.0 3.2 100.0
Total 1379 94.1 100.0

Missing System 87 5.9

Total 1466 100.0

Niehoff 18






Frequency Percent Valid Percent Cumulative
Percent
Valid
No Change 1327 90.5 95.3 95.3
Negative Change 27 1.8 1.9 97.2
Positive Change 39 2.7 2.8 100.0
Total 1393 95.0 100.0

Missing System 73 5.0

Total 1466 100.0


All three frequency tables reveal that the overwhelming majority of these cases,
approximately 90% in all three tables, show no change in either GDP from the previous
year, GDP per capita from the previous year or foreign direct investment from the
previous year. Prior to looking at any cross tabulations, any significant change in any of
the three factors due to domestic terrorism is unlikely based upon the frequency tables.
The Independent Variable
The independent variable used in all three models is a recoded combination of
four recoded variables from the GTD data to measure the magnitude of each attack that
occurred in ASEAN member states from 1995-2012. Four variables were borrowed from
the GTD dataset: total number of fatalities, total number of injured, property
damage, and hostages or kidnapping victims (National Consortium2012). These
GTD variables were recoded into new variables as number killed in attack, number
wounded in attack, was property damaged, and were hostages taken. The new
variable number killed in attack is a scale variable the number of fatalities as a result of
the attack, and the new variable number wounded in attack is a scale variable of the
Figure 3. Change in Foreign Direct Investment from the Previous Year
Niehoff 19

number of wounded as a result of the attack. The new variables was property damaged
and were hostages taken, are both nominal variables with yes=1 and no=0. All four
new variables were again recoded into ordinal variables to properly measure the
magnitude of each terrorist attack. Being that every attack is not the same, assessing the
magnitude of each attacks is important to assess. All four variables were recoded into
ordinal level data variables. Each new variable uses the same scale from 1-10 to measure
the magnitude of the event: 0=no magnitude, 1-5=low magnitude, 6=medium magnitude,
7=medium high magnitude, 8=high magnitude, 9=very high magnitude, 10= extremely
high magnitude. The manner in which each variable was recoded, can be found in the
Appendix 1. The result of the recoding was 4 new ordinal variables: magnitude of
killed, magnitude of wounded, magnitude of property damage, and magnitude of
hostages taken. Important to note is that some variables have a higher value than others.
Giving each variable different levels of magnitude helped to distinguish some variables
as having, overall, more magnitude than other variables. For example, magnitude of
killed starts at a value of 6, purporting that any attack that results in death is at least of
medium magnitude, while magnitude of hostages is only given a value of 6 if hostages
were taken. All four variables were then added together into a new variable, combined
magnitude. Since this variable added together four variables, with values ranging from
1-10, the resulting values ranged anywhere from 0-32. To allow for more concise ordinal
measurement, these values were recoded into a range of 1-5 in the new variable
combined magnitude of attack. Listed first are the values from the old variable and
listed second is the new value in final magnitude of attack:
1-31=low magnitude, 4-7 2=medium magnitude, 8-16 3=high magnitude, 17-20 4=very high
magnitude, 21-32 5=extremely high magnitude
Niehoff 20

As stated earlier in the project, four ASEAN member states (Brunei, Singapore,
Timor-Leste and Vietnam) did not experience any acts of domestic terrorism from 1995-
2012. To account for this, a new variable, did domestic terror occur in this year, was
created as a simple nominal variable that gave all events of domestic terrorist attack a
value of 1, and all states that never incurred a domestic terrorist attack. Did domestic
terror occur in this year was multiplied by combined magnitude of attack, giving all
years in which no attack occurred in Brunei, Singapore, Timor-Leste and Vietnam a
value of 0, equaling zero magnitude. All acts of domestic terror were multiplied by 1 and
therefore remained at the same level of magnitude as in combined magnitude of attack.
The following is a frequency table for final magnitude of attack.
Table 4. Final magnitude of attack
Frequency Percent Valid
Percent
Cumulative
Percent
Valid No magnitude 72 4.9% 5.7% 5.7
Low Magnitude 114 7.8% 9.0% 14.6
Medium Magnitude 635 43.3% 50.0% 64.6
High Magnitude 351 23.9% 27.6% 92.3
Very High
Magnitude
78 5.3% 6.1% 98.4
Extremely High
Magnitude
20 1.4% 1.6% 100.0
Total 1270 86.6% 100.0% 100.0%
Missing Total Missing 196 13.4% 100.0% 100.0%
Total 1466 100.0% 100.0% 100.0%

The arduous process of creating the final magnitude of attack variable produced a
variable that accurately measures the magnitude of the domestic terrorist attacks. By
including the number of killed, the number of wounded, and the numbers of hostages
taken, direct human loss of the attack is measured. All three of these elements affect both
Niehoff 21

the individuals directly affected by the attack, as well as those indirectly affected and the
government who has to deal with the human loss, negatively effecting GDP and GDP per
capita. People within the state could lose valued property or business revenue.
Consequently, the state could lose credibility as being able to protect the citizens and
business within state borders, discouraging foreign investment.
Crosstabulations and Measurements
For the sake of space, all crosstabulations can be found in the appendices:
Appendix 2- final magnitude of attackGDP change crosstabulation; Appendix 3- final
magnitude of attackGDP per capita change crosstabulation; Appendix 4- final
magnitude of attackdirect foreign investment crosstabulation. Below are the chi-square
value, degree of freedom, somers d value, gamma value and tau-c value for each
crosstabulation.
Crosstabulation Name Chi-
Square
DF Chi-
square
critical
Somers
d
Gamma Tau-c
Final magnitude of Attack
GDP Change
15.344 8 15.507 .026 .165 .014
Final magnitude of attack
GDP per capita change
15.917 8 15.507 .04 .228 .021
Final magnitude of attack
foreign direct investment
21.317 8 15.507 .055 .289 .030

Based upon these measurements the validity of all three models can be assessed.
Assessment of Appendix 2
Based upon the Chi-Square value we can write off this model completely,
rendering all other measures irrelevant. The Chi-Square value must be higher than the
Chi-Square Critical value in order for the data to be statistically significant, and the null
hypothesis rejected. In case of the final magnitude of attackGDP change
Niehoff 22

crosstabulation, the Chi-Square value is 15.344 and the Chi-Square critical value, for a
degree of freedom 8, is 15.507. The null hypothesis cannot be denied, rendering the
results to be statistically insignificant.
Assessment of Appendix 3
In this crosstab testing, finale magnitude of attackGDP per capita change
crosstabulation, the Chi-Square value, 15.917, is barely higher the Chi-Square Critical
value, 15.507. For this hypothesis, the null hypothesis can be denied and the results are
therefore statistically significant, but barely. The Chi-Square value is only .410 higher
than the required Chi-Square Critical value. Also, the closer the gamma, the somers d
and the tau-c measures are to |1|, the stronger the relationship is between the variables.
All three of these measures are very low, corroborating the low Chi-Square value. In
conclusion, the model is still valid, but the relationship between the variables is
extremely weak.
Assessment of Appendix 4
The final magnitude of attackforeign direct investment change
crosstabulation was used to measure this hypothesis. Unlike the first two models, this
final model shows signs of a stronger statistical significance. The Chi-Square value,
21.317, is 5.81 higher than the Chi-Square critical, 15.507. In this case the null
hypothesis can be denied and the data can be confirmed as statistically significant. While
there is a slightly higher significance to the data than the previous crosstab, the Gamma,
Somers d and Tau-c values all show a weak relationship between the variables. Overall,
this final model shows that the amount of domestic terrorism does adversely affect the
amount of foreign direct investment, but very minimally.
Niehoff 23


Findings
Based upon the model composed using data from the IMF, World Bank and GTD,
several pertinent results must be discussed. The question posed at the beginning of the
project was what is the economic effect of domestic terrorism on ASEAN member
states? The question was answered because the three models used to test my hypotheses
regarding this question suggest that the economic effect of domestic terrorism on ASEAN
member states is a very limited effect, if any effect at all.
While the models measuring the effect of domestic terrorism on GDP and the
effect of domestic terrorism on GDP per capita did had minimal to no statistical
significance, the final model produced statistically significant results. My first hypothesis
was that an increase in the amount of domestic terrorism in an ASEAN member state will
cause a decrease in gross domestic product. The Chi-Square measure of the final
magnitude of attackchange in GDP crosstab used to test this hypothesis was not high
enough to render the model to be statistically significant, therefore this hypothesis is
determined to be incorrect. An increase in domestic terrorism in ASEAN member states
does not cause a decrease in GDP. My second hypothesis was that an increase in the
amount of domestic terrorism in an ASEAN member state will cause a decrease in gross
domestic product per capita. While the Chi-Square measure for the final magnitude of
attackchange in GDP per capita crosstab used to measure this hypothesis was just
high enough to render the data to be statistically significant, the directional and
symmetrical measures are very low. So, the null hypothesis is denied, but the original
hypothesis has very limited support based upon the very weak directional measures. My
Niehoff 24

final hypothesis was that an increase in the amount of domestic terrorism in an ASEAN
member state will cause a decrease in foreign direct investment. The model used to test
this third hypothesis, final magnitude of attackchange in foreign direct investment,
was statistically significant and showed more of a sign of a strong relationship between
the independent variable and the dependent variable. All of the values, gamma, tau-c and
Somers d, were all, however, marginally low. None of these values exceeds .289, and
being that the closer these values are to |1| the stronger the relationship is, the correlation
between the increase in domestic terrorism and the decrease in foreign investment is a
weak correlation. But, a correlation exists nonetheless. While a positive correlation exists
between the independent variable and dependent variable, the models, as a whole, are
limited in several ways.
Two of the three models have statistical significance, but all of the models are,
however, limited because of and overgeneralized comprehensive measurement, a limited
measurement timeframe and potentially inaccurate variables. All models grouped all
ASEAN member states together, yet still measured the separate effect of domestic
terrorism on each respective economy. This method is potentially problematic. Each and
every ASEAN member state is unique and each state has changed from 1995 to 2012.
Separate, individual studies on the effect of domestic terrorism on ASEAN member state
economies could produce more detailed and accurate results. For example, a study on the
effect of domestic terrorism on the economy of the Philippines alone, that measures more
minute economic factors, could produce more detailed results. Secondly, the timeframe
of 1995 to 2012 was thought to be a long enough timeframe to measure the hypotheses.
While the total N of 1394 cases was certainly a large enough sample of measurement,
Niehoff 25

four countries were eliminated from the dataset. Timor-Leste is too young to have older
cases, but acts of domestic terror could have occurred in Brunei, Singapore and Vietnam
prior to 1995. All hypotheses were not concerned with the prevalence of attacks, but with
the effect of the attacks on ASEAN member state economies. By expanding the
timeframe to 1970-2012, more acts of domestic terror could have been compared to
changes in GDP, GDP per capita and direct foreign investment, and could have produced
different results. The manner chosen to measure magnitude could also be seen as
problematic. The death toll, amount wounded, property damaged and hostages taken were
all used to measure magnitude. The goal of including all four of these variables was to
ensure a comprehensive concept of attack magnitude, but may have been an insufficient
measure. A simpler scale variable that only incorporated the amount of killed could have
been a more accessible measure. By combining all four, there is risk for improper
association. For example, an attack may have killed 200 people and wounded 50, but if
no hostages were taken and no property was damaged, then the magnitude of the attack
would be lower than if hostages were taken and property damaged. Based upon my
measurements, an attack that included hostages and resulted in property damage could be
measured as equal in magnitude to an attack that resulted with seven deaths and twenty
wounded. Equating damage to property with seven human deaths is a problematic
method. While a measure that only includes killed and wounded could be seen as limited
in scope also, including only wounded and killed would provide a more reliable measure,
and ultimately a more reliable model.
Conclusion
Niehoff 26

While I did not find sufficient support for all three hypotheses, the results of all
three models provide insights that validate earlier studies. The results encourage ASEAN
state officials to consider the effect of domestic terrorism on ASEAN member states, and
encourage political scientists to conduct more focused research on domestic terrorism.
First, the results regarding foreign investment may not have had strong
significance, but the results did show that an increase in domestic terrorism in an ASEAN
member state will cause a slight decrease in direct foreign investment. This result proves
that is not just transnational terrorism, but domestic terrorism, will have an effect on the
amount of money and capital other countries are willing to send into ASEAN member
states. Much attention has been given by ASEAN in combatting international terrorism.
In 2002, ASEAN signed an agreement to work together to combat international terrorism
(Chau 2008, 631-632). In 2003 and 2004, ASEAN had meetings of its member states on
how to combat international terrorism (632). Attention to terror rising from within
ASEAN member states should be given more attention. By limiting domestic terrorism,
ASEAN member states would see a very slight increase in foreign investment. The
increase of foreign investment may be minimal, but many of the ASEAN member states
that are still developing nations would welcome any increase in money and capital
coming into their state to further stimulate growth. While ASEAN state officials should
focus on the specific results of the study, political scientists should step back and realize
the general validity of this study.
Political scientists may see the results of this study of little importance because of
the limited support for the hypotheses, but these results of this study point to generalities
in political science research that must be addressed. The earlier cited studies on the
Niehoff 27

economic effect of domestic terrorism on Africa and W. Europe produced different
results. The Africa study concluded that domestic terrorism had no effect on economic
growth, in Africa (Gaibulloev and Sandler 2011, 366). The study on Western Europe
concluded that domestic terrorist events from 1971-2004 reduced economic growth by
.2%, in Western Europe (422). The study on domestic terrorism in the Basque region
found that an increase in attack severity caused a decrease in GDP per capita (Abadie and
Gardeazabal 2003). This study on ASEAN member states concluded that domestic
terrorism has a minimal effect in decreasing direct foreign investment, but no effect on
GDP or GDP per capita, in ASEAN member states. All four of these studies produced
three results that were unique to the area of study. Political scientists must study domestic
terrorism in a region by region, even state by state, manner. No region or state is the
same, so studies should not be overreaching in assuming that one study of the effect
domestic terrorism on economies is determinative of the effect of domestic terrorism on
economies in all other cases.
While changed methodology and altered data could have produced more
significant models, this project ultimately provided important insights. Further expansion
of the concepts, data and models employed in this project could eventually provide a
conclusive answer. But for now, this project has shown that foreign direct investment is
slightly decreased by domestic terrorism in ASEAN member states. This project has also
encouraged political scientists to focus on states and regions when conducting research
on domestic terrorism. And because of these results I would consider this project to be a
success.

Niehoff 28

Appendices
Appendix 1. Recode of Variables magnitude of killed, magnitude of wounded, magnitude of
property damage, and magnitude of hostages taken.

- magnitude of killed recode

Previous values New value
0 Deaths 0: Zero Magnitude
1-7 Deaths 6: Medium Magnitude
8-16 Deaths 7: Medium High Magnitude
17-30 Deaths 8: High Magnitude
31-50 Deaths 9: Very High Magnitude
51-120 Deaths 10: Extremely High Magnitude

- magnitude of wounded recode
Previous Values New Value
0 Wounded 0: Zero Magnitude
1-3 Wounded 4: Very Low Magnitude
4-8 Wounded 5: Low Magnitude
9-20 Wounded 6: Medium Magnitude
21-40 Wounded 7: Medium High Magnitude
41-70 Wounded 8: High Magnitude
71-100 Wounded 9: Very High Magnitude
101-400 Wounded 10: Extremely High Magnitude

- magnitude of property damage recode
Previous Values New Value
0: No damage 0: No magnitude
1: Damage 6: Medium Magnitude

- magnitude of hostages taken
Previous Values New Value
0: No hostages taken 0: No magnitude
1: Hostages taken 6: Medium Magnitude









Niehoff 29

Appendix 2. Final magnitude of attack-GDP change crosstabulation
No Change
Negative
Change
Positive
Change
Total
Final magnitude
of attack
Low
Magnitude
Count 107 2 5 114


% within final
magnitude of
attack
93.9% 1.8% 4.4% 100.0%


% within GDP
Change from
Previous Year
9.5% 20.0% 12.5% 9.7%
% of Total 9.1% 0.2% 0.4% 9.7%
Medium
Magnitude
Count 616 5 13 634


% within final
magnitude of
attack
97.2% 0.8% 2.1% 100.0%


% within GDP
Change from
Previous Year
54.5% 50.0% 32.5% 53.7%
% of Total 52.2% 0.4% 1.1% 53.7%
High
Magnitude
Count 324 1 17 342


% within final
magnitude of
the attack
94.7% 0.3% 5.0% 100.0%


% within GDP
Change from
Previous Year
28.7% 10.0% 42.5% 29.0%
% of Total 27.5% 0.1% 1.4% 29.0%
Very High
Magnitude
Count 66 2 3 71


% within final
magnitude of
attack
93.0% 2.8% 4.2% 100.0%


% within GDP
Change from
Previous Year
5.8% 20.0% 7.5% 6.0%
% of Total 5.6% 0.2% 0.3% 6.0%
Extremely
High
Magnitude
Count 17 0 2 19


% within final
magnitude of
attack
89.5% 0.0% 10.5% 100.0%


% GDP Change
from Previous
Year
1.5% 0.0% 5.0% 1.6%
% of Total 1.4% 0.0% 0.2% 1.6%
Total Count 1130 10 40 1180


% within final
magnitude of
attack
95.8% 0.8% 3.4% 100.0%


% within GDP
Change from
Previous Year
100.0% 100.0% 100.0% 100.0%
% of Total 95.8% 0.8% 3.4% 100.0%



Niehoff 30

Appendix 3. Final magnitude of attackChange in GDPPC Crosstabulation
No Change
Negative
Change
Positive
Change
Total
FinalMagnitude
of attack
Low
Magnitude
Count 107 2 5 114

% within final
magnitude of
attack
93.9% 1.8% 4.4% 100.0%

% within
Change in
GDPPC
9.5% 14.3% 11.9% 9.6%
% of Total 9.0% 0.2% 0.4% 9.6%

Medium
Magnitude
Count 616 5 14 635

% within final
magnitude of
attack
97.0% 0.8% 2.2% 100.0%

% within
Change in
GDPPC
54.5% 35.7% 33.3% 53.5%
% of Total 51.9% 0.4% 1.2% 53.5%

High
Magnitude
Count 324 4 17 345

% within final
magnitude of
attack
93.9% 1.2% 4.9% 100.0%

% within
Change in
GDPPC
28.7% 28.6% 40.5% 29.1%
% of Total 27.3% 0.3% 1.4% 29.1%

Very High
Magnitude
Count 66 3 4 73

% within final
magnitude of
the attack
90.4% 4.1% 5.5% 100.0%

% within
Change in
GDPPC
5.8% 21.4% 9.5% 6.2%
% of Total 5.6% 0.3% 0.3% 6.2%

Extremely
High
Magnitude
Count 17 0 2 19

% within final
magnitude of
the attack
89.5% 0.0% 10.5% 100.0%

% within
Change in
GDPPC
1.5% 0.0% 4.8% 1.6%
% of Total 1.4% 0.0% 0.2% 1.6%
Total Count 1130 14 42 1186

% within final
magnitude of
the attack
95.3% 1.2% 3.5% 100.0%

% within
Change in
GDPPC
100.0% 100.0% 100.0% 100.0%
% of Total 95.3% 1.2% 3.5% 100.0%




Niehoff 31

Appendix 4. Final magnitude of attackForeign direct investment Crosstabulation
No Change
Negative
Change
Positive
Change
Total
Magnitude
of the attack
Low
Magnitude
Count 107 3 4 114

% within
magnitude of
attack
93.9% 2.6% 3.5% 100.0%

% within
Change in
FDI
9.4% 12.5% 10.8% 9.5%
% of Total 8.9% 0.3% 0.3% 9.5%

Medium
Magnitude
Count 616 6 13 635

% within
magnitude of
attack
97.0% 0.9% 2.0% 100.0%

% within
Change in
FDI
54.2% 25.0% 35.1% 53.0%
% of Total 51.5% 0.5% 1.1% 53.0%

High
Magnitude
Count 328 9 14 351

% within
magnitude of
attack
93.4% 2.6% 4.0% 100.0%

% within
Change in
FDI
28.9% 37.5% 37.8% 29.3%
% of Total 27.4% 0.8% 1.2% 29.3%

Very High
Magnitude
Count 68 5 4 77

% within
magnitude of
attack
88.3% 6.5% 5.2% 100.0%

% within
Change in
FDI
6.0% 20.8% 10.8% 6.4%
% of Total 5.7% 0.4% 0.3% 6.4%

Extremely
High
Magnitude
Count 17 1 2 20

% within
magnitude of
attack
85.0% 5.0% 10.0% 100.0%

% within
Change in
Foreign
Direct
Investment
1.5% 4.2% 5.4% 1.7%
% of Total 1.4% 0.1% 0.2% 1.7%
Total Count 1136 24 37 1197

% within
magnitude of
attack
94.9% 2.0% 3.1% 100.0%

% within
Change in
FDI
100.0% 100.0% 100.0% 100.0%
% of Total 94.9% 2.0% 3.1% 100.0%


Niehoff 32

References
Abadie, Alberto and Javier Gardeazabal. 2003. The Economic Cost of Conflict: A Case
Study of the Basque Country American Economic Review 64: 451-463.
Chau, Andrew. 2008. Security Community and Southeast Asia: Australia, the U.S., and
ASEANs Counter-Terror Strategy Asian Survey 48 (Jul.-Aug.): 626-649.
"domestic, adj. and n.". OED Online. March 2014. Oxford University Press. Retrieved
from http://www.oed.com/view/Entry/56663?redirectedFrom=domestic (accessed
April 12, 2014)
Crain, Nicole V. and W. Mark Crain. 2006. Terrorized Economies Public Choice 128
(July): 317-349.
Enders, Walter and Eric Olson. 2009. Measuring the Economic Costs of Terrorism
Department of Economics, Finance and Legal Studies: University of Alabama: 1-
34.
Enders, Walter, Todd Sandler and Khusrav Gaibulloev. 2011. Domestic Versus
Transnational Terrorism: Data, Decomposition and Dynamics Journal of Peace
Research 48 (March): 319-337.
Gaibulloev, Khusrav and Todd Sandler. 2011. The Adverse Effect of Transnational and
Domestic Terrorism on Growth in Africa Journal of Peace Research 48
(March): 355-371.
Gaibulloev, Khusrav and Todd Sandler. 2008. Growth Consequences of Terrorism in
Western Europe Kyklos 61: 411424
Gaibulloev, Khusrav and Todd Sandler. 2009. The Impact of Terrorism and Conflicts on
Growth in Asia Economics and Politics 21 (November): 359-383.
ISI Developing Countries (in 2013). 2013. International Statistic Institute. Retrieved
from http://www.isi-web.org/component/content/article/5-root/root/577-
developing2012
Meierrieks, Daniel and Thomas Gries. 2013. Causality Between Terrorism and
Economic Growth Journal of Peace Research 50 (Jan.): 91-104.
National Consortium for the Study of Terrorism and Responses to Terrorism (START).
(2012). Global Terrorism Database [Data file]. Retrieved from
http://www.start.umd.edu/gtd
Niehoff 33

Nitsch, Volker and Dieter Schumacher. 2003. Terrorism and Trade German Institute
for Economic Research (June): 1-13.
Piazza, James A. 2011. Poverty, minority economic discrimination, and domestic
terrorism Journal of Peace Research 48 (March): 339-353.
Sandler, Todd and Walter Enders. 2009. Economic Consequences of Terrorism in
Developed and Developing Countries: An Overview University of Alabama.
World Economic Outlook: April 2014. International Monetary Fund. Washington, D.C.
Retrieved from http://www.imf.org/external/pubs/ft/weo/2014