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This paper puts forward a time-series methodology for quantifying the impact that terrorist incidents have had on net foreign direct investment. For Spain, a transfer function is used for quantification purposes, while, for Greece, a VAR model is employed. Terrorism had a significant and persistent negative impact on net foreign direct investment--a year's worth of terrorism discouraged net foreign direct investment by 13.5 percent annually in Spain and by 11.9 percent annually in Greece. The cumulative effect on foreign-held capital is indicated. It shows that smaller countries that face a persistent threat of terrorism may incur economic costs in the form of reduced investment and growth. Copyright 1996 by WWZ and Helbing & Lichtenhahn Verlag AG
Enders et al. (Thu,) studied this question.