Expecting the Unexpected : The Marginal Effect of Unanticipated Terrorist Attacks on Foreign Direct Investment in Israel and Turkey

Sammanfattning: The paper examines if and to what to extent unanticipated terrorist attacks affect Foreign Direct Investment (FDI) net inflow in Israel and Turkey between 1975 and 2014. The paper utilises two new conceptualisations and operationalisations to determine what makes a year contain unanticipated terrorist attacks and applies them using linear regression on the change in FDI between given years. Using this new operationalisation 10 out of 40 years in Israel and 13 out of 40 years in Turkey were deemed to have experienced unanticipated terrorist attacks. Two models, one controlling for changes in GDP growth, market size, exchange rates and inflation, and one without control variables are used to examine the effect of unanticipated attacks on FDI. The results indicate that unanticipated terrorist attacks had a statistically significant negative effect on FDI into Israel but no discernible effect in Turkey. The reason for this discrepancy between the two countries is likely because of the geographic location of terrorist activity in each country, global political pressures, and the type of terrorist activity.