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We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of geopolitical risk. Investment drops more in industries that are exposed to aggregate geopolitical risk. Higher firm-level geopolitical risk is associated with lower firm-level investment.

Many theories of international relations assume that public opinion exerts a powerful effect on foreign policy in democracies. Previous research, based on observational data, has reached conflicting conclusions about this foundational assumption. We use experiments to examine two mechanisms—responsiveness and selection—through which opinion could shape decisions about the use of military force. We tested responsiveness by asking members of the Israeli parliament to consider a crisis in which we randomized information about public opinion. Parliamentarians were more willing to use military force when the public was in favor and believed that contravening public opinion would entail heavy political costs. We tested selection by asking citizens in Israel and the US to evaluate parties/candidates, which varied randomly on many dimensions. In both countries, security policy proved as electorally significant as economic and religious policy, and far more consequential than nonpolicy considerations such as gender, race, and experience. Overall, our experiments in two important democracies imply that citizens can affect policy by incentivizing incumbents and shaping who gets elected.

We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. Several types of evidence—including human readings of 12,000 newspaper articles—indicate that our index proxies for movements in policy-related economic uncertainty. Our U.S. index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt ceiling dispute, and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty is associated with greater stock price volatility and reduced investment and employment in policy-sensitive sectors like defense, health care, finance, and infrastructure construction. At the macro level, innovations in policy uncertainty foreshadow declines in investment, output, and employment in the United States and, in a panel vector autoregressive setting, for 12 major economies. Extending our U.S. index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upward since the 1960s.

This overview examines critically the post-9/11 empirical literature on terrorism. Major contributions by both economists and political scientists are included. We focus on five main themes: the changing nature of terrorism, the organization of terrorist groups, the effectiveness of counterterrorism policies, modern drivers or causes of terrorism, and the economic consequences of terrorism. In so doing, we investigate a host of questions that include: How do terrorist groups attract and retain members? What determines the survival of terrorist groups? Is poverty a root cause of terrorism? What counterterrorism measures work best? In the latter regard, we find that many counterterrorism policies have unintended negative consequences owing to attack transference and terrorist backlash. This suggests the need for novel policies such as service provision to counter some terrorist groups’ efforts to provide such services. Despite terrorists’ concerted efforts to damage targeted countries’ economies, the empirical literature shows that terrorism has had little or no effect on economic growth or GDP except in small terrorism-plagued countries. At the sectoral level, terrorism can adversely affect tourism and foreign direct investment, but these effects are rather transient and create transference of activities to other sectors, thus cushioning the consequences.

This article reports on trends in organized violence from data collected by the Uppsala Conflict Data Program (UCDP). With almost 90,000 deaths recorded by UCDP last year, 2017 saw a decrease for the third consecutive year to a level 32% lower than the latest peak in 2014. This trend in declining levels of organized violence is driven by state-based armed conflict, and by the case of Syria in particular. Forty-nine state-based conflicts were active in 2017, down by four compared to 2016, and ten of these reached the level of war, with at least 1,000 battle-related deaths. The overall decrease in fatalities lends support to the claim that conflict deaths are in decline and that the world is increasingly peaceful. This trend holds even more strongly when controlling for increases in world population. In contrast, non-state conflict has increased: a new peak of 82 active non-state conflicts was recorded in 2017 and fatalities have increased concurrently. Much of this is due to escalating violence in DR Congo and the Central African Republic. However, fatalities from non-state conflict remain but 15% of the total number of fatalities from organized violence. As for actors engaged in one-sided violence, their number also increased during 2017, although the number of fatalities remained at the same level as in 2016.

We introduce aggregate transmission shocks to an epidemic model and link firm valuations to infections via an asset pricing framework with vaccines. Infections lower earnings growth but firms can mitigate damages. We estimate a large reproduction number R₀ and transmission volatility for COVID-19. Using these estimates, we quantify the bias of deterministic approximations based on R₀. Our model generates predictions consistent with the data: unexpected infection resurgence, nonmonotonic mitigation policies, and higher price-to-earnings ratios during a pandemic. Valuations would be significantly lower absent mitigation and a high vaccine arrival rate.

We use rich historical data on military procurement to estimate the effects of government spending. We exploit regional variation in military buildups to estimate an \"open economy relative multiplier\" of approximately 1.5. We develop a framework for interpreting this estimate and relating it to estimates of the standard closed economy aggregate multiplier. The latter is highly sensitive to how strongly aggregate monetary and tax policy \"leans against the wind.\" Our open economy relative multiplier \"differences out\" these effects because monetary and tax policies are uniform across the nation. Our evidence indicates that demand shocks can have large effects on output.

This study aims to analyse the effect of illicit financial flows on public investment in Africa. It also examines the indirect effect of illicit financial flows through their effect on terrorist activities. The empirical strategy relies on fixed effects regressions as well as on three-stage least squares (3SLS) regressions using panel data from 38 African countries from 2002 to 2019. The estimation results show that illicit financial flows have a significant and negative effect on public investment, whereas illicit financial flows, especially illicit financial inflows, have a positive and significant effect on terrorism activity. However, we find no evidence that terrorist activity has a significant effect on public investment. These findings are qualitatively robust with respect to alternative estimation strategies. The main policy implication of these findings is that, to increase public investment and reduce terrorist financing, African governments should pool and intensify their efforts to combat illicit financial flows.

In this paper, we extend the current literature by seeking answers to two questions: (1) were/are traditional stock markets or FinTech markets more volatile during the Russia–Ukraine War? (2) Which market returns were/are higher during the Russia–Ukraine War—traditional stocks or Fintech stocks. We explored whether cumulative abnormal returns and the stock price of the Fintech market, proxied by Global X Fintech ETF, of firms listed in 28 different countries’ stock markets differ during the Russia–Ukraine War than before the war. Our data set covers the period from June 1, 2021, through November 22, 2022. Our results found that traditional stock markets have been more volatile than Fintech stock markets during the Russia–Ukraine War than before the war. On the other hand, we can see that traditional market returns have been lower than Fintech market returns during the Russia–Ukraine war than before the war.