Do Remittances and Terrorism Impact Each Other?

Abstract

Abstract Current studies do not conclusively tell us whether there is a causal relationship between remittances and terrorism. Yet, this question is important because the answer has clear implications for the way remittances are monitored and handled. Hence, with this paper, we move a step closer to a definitive answer by studying the impact of remittances on specific terrorist events in 180 countries over the period 1970–2020. We also look in reverse at whether acts of terrorism attract remittances. From event-study analysis and a panel vector autoregression model, Granger causality tests, and a Cholesky decomposition to isolate shocks, we find that we can neither reject the hypothesis that remittances do not Granger-cause terrorism nor reject that terrorism does not Granger-cause remittances. We also find that terrorism response to remittances shock is negative. These findings do not support previous studies that show remittances could be used to fund terrorist attacks. Further, the response of remittance to terrorism shock is null, excepting for Latin America which shows a statistical negative effect. Remittances in Latin America do not appear to respond to conflict. Some of our findings are new, others contradict a large stream of literature (i.e. remittances as a potential source of financing). The insights should be useful to policymakers to facilitate the flow of remittances that result in more disposable income of recipient families and possibly help households to cope with the financial loss of terrorist activity.