Terrorism, Innovation, and Economic Channels: Insights from a Panel ARDL Model

The impact of terrorism on economic growth has received widespread attention, whereas the linkage between terrorism and innovation remains underexplored mainly as it provides mixed findings in the existing literature. This study contributes to the existing literature by investigating the various channels, such as trade openness, foreign direct investment (FDI), and domestic investment through which terrorism affects innovation. Moreover, it contributes to the literature by using the Panel ARDL model, which has not been used in the given context. To this end, we analyze panel data from 57 nations from 1985 to 2023, by using the Panel ARDL model, and panel quantile regression methods. Our findings indicate that terrorism has significant negative effects on innovation activities. The Panel ARDL results reveal that terrorism has a significant negative impact on innovation in both the short and long run, with trade openness, FDI, and domestic investment serving as crucial mediating channels. These results highlight that a stable economic environment is crucial in innovation-related activities, as terrorism creates a significant barrier to investment and trade.