Abstract
This study estimates the impact of terror activity on inflation in Pakistan. Considered as one of the most dangerous places in the world, Pakistan is the epicentre of terror activity since September 11, 2001 (9/11). Apart from casualties of innocent people and damage to infrastructure, there are other macroeconomic consequences of terror as well. Terror activity disrupts the supply-chain and influence consumer behaviour that has implications for inflation. After developing the terror index (TI) which captures the impact of terror activity in Pakistan, Autoregressive Distributed Lag (ARDL) model is used on monthly data starting from January 2002 to October 2023. This estimation strategy provides both the short-run and long-run coefficients and analyses the long-run relationship between inflation and terror index. Traditional determinants of inflation such as money supply, government borrowing from the central bank, nominal exchange rate and a dummy for massive floods are used as ‘control’ variables in this study to gain improved model fit and address the problem of endogeneity. The results show that the coefficient of terror index is statistically significant both in the short-run and the long-run. A rise in terror activity leads to an increase in inflation. Coefficients of control variables are also statistically significant and in line with economic intuition. The assertion that high inflation or fragile economic conditions may lead to terror activity does not hold for Pakistan as the responsibility of more than 90 percent of the terror incidents is claimed by international terrorist organizations or banned local organizations that function on their own extremist ideology. Reverse causality test validates the proposition that inflation is not a determinant of terror activity in Pakistan.
Author Information
Syed Zulqernain Hussain, University of Otago, New Zealand
Paper Information
Conference: ACSS2024
Stream: Politics
This paper is part of the ACSS2024 Conference Proceedings (View)
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To cite this article:
Hussain S. (2024) Inflation: The Macroeconomic Consequence of Terror Activity in Pakistan ISSN: 2186-2303 – The Asian Conference on the Social Sciences 2024: Official Conference Proceedings (pp. 289-298) https://doi.org/10.22492/issn.2186-2303.2024.24
To link to this article: https://doi.org/10.22492/issn.2186-2303.2024.24
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