Ever since the skyjackings of four wide-bodied planes on September 11, 2001 (henceforth 9/11), economists have displayed a strong research interest in terrorism. Theoretical and empirical papers have investigated myriad aspects of terrorism--for example, the economic consequences of terrorism, the impact of terrorism on economic development, the root causes of terrorism, and the effectiveness of counterterrorism policies (see the literature survey by Enders and Sandier 2012). This research has derived some guiding principles. First, the macroeconomic consequences of terrorism are generally quite small and of a short-term nature for most economies. Like crime, terrorism is anticipated to have a local influence because property damage is typically limited and few people die--on average, 420 people lost their lives annually from transnational terrorist attacks since 1968 (Sandier, Arce, and Enders 2009). Second, large diversified economies are particularly able to endure terrorism with minimal repercussions as economic activities transfer from terrorism-prone to safer sectors. Third, small developing countries are more inclined to suffer adverse economic effects from terrorism (Keefer and Loayza 2008). Fourth, in cross-sectional and panel regressions, transnational terrorism has had a small but significant impact on economic growth (Blomberg, Hess, and Orphanides 2004; Gaibulloev and Sandler 2008, 2011; Tavares 2004). Fifth, the root cause of terrorism is not poverty (Gassebner and Luechinger 2011; Kmeger and Maleckova 2003; Piazza 2011); unpopular foreign policy decisions appear to be a significant cause of transnational terrorism (Savun and Phillips 2009). Sixth, actions to protect against specific types of terrorist attacks (e.g., metal detectors in airports to curb skyjackings) or to guard specific kinds of targets (e.g., government officials) result in terrorists substituting into other modes and targets of attacks (Brandt and Sandler 2010; Enders and Sandler 1993). Seventh, terrorism can influence the outcome of national elections (Gassebner, Jong-A-Pin, and Mierau 2008; Gassebner and Luechinger 2011).
The primary purpose of this article is to apply modern principal component analysis to identify common (worldwide) and idiosyncratic (country-specific) factors that influence transnational terrorism involving two or more countries. Our main goal is to identify any co-movement of transnational terrorism across countries, which has not been previously investigated. Principal component analysis is a statistical method to estimate the most influenced common stochastic series by analyzing cross-sectional correlation. For our particular application, principal component analysis identifies if there are influences that commonly or generally affect the dynamic co-movement of transnational terrorist attacks in the sample countries. If one or more common factors are estimated, then we relate these factors to the transnational terrorist attacks in the sample countries to ascertain whether some countries' transnational terrorist campaigns drive attacks worldwide. Principal component analysis also indicates which countries' transnational terrorism is driven by considerations specific to them and, thus, independent of attacks occurring abroad. Such countries likely confront perpetrators who are not driven by grievances, ideologies, or resources shared with groups abroad--hence, the notion of idiosyncratic factors.
The principal component analysis here finds a single common factor for transnational terrorism during 1970-2007, which we then relate by our methodology to the transnational terrorist campaigns in some specific countries. In fact, all co-movements of transnational terrorism across countries are explained by just five countries' transnational terrorist attacks. Among them, Lebanon's transnational terrorist attacks explain most of the worldwide co-movement of transnational terrorism, with the other four countries--United States, Germany, Iraq, and the United Kingdom--explaining the remainder. …