International Terrorism in Latin America: Effects on Foreign Investment and Tourism

It has been suggested that terrorist attacks can have serious economic consequences for the countries where the attacks occur. An analysis of 23 countries in Latin America between 1969 and 1988 indicated that incidents of terrorism had only modest negative effects on foreign direct investment in these countries even though foreign operations of multinational corporations were frequent targets in this period. The tourist sector, however, was more susceptible to negative influences from terrorist violence. Keywords: Latin America, Terrorism, Tourism, Direct Foreign Investment Introduction In recent years, major terrorist attacks have had a many effects on political systems, economic systems, and societies in general. Among the possible consequences of terrorism is the potential for such incidents to disrupt both domestic and international economic interactions. Among the potential effects that terrorist violence can have would be declines in foreign direct investment and reductions in tourist visits to the countries that have faced greater levels of terrorist violence. These negative effects of terrorism might vary depending upon a number of circumstances, including the frequency and severity of attacks, and other factors such as the types of targets chosen. While the potential for economic disruption is clearly present in the twenty-first century, it is important to assess the economic effects of attacks in the past as well. The analysis to follow will attempt to measure some of the international economic impacts of terrorist attacks in twenty-three Latin American countries during the twenty years between 1969 and 1988, and to determine if the countries suffering from greater levels of international terrorist activity actually did experience greater negative economic effects. Prevalence of Terrorism Since the disasters of September 11, 2001 and the beginning of the war on terrorism, the dangers and implications of violent attacks by dissidents have been widely discussed. Much of the recent focus has justifiably been on Al Qaeda and the efforts being made to find and destroy this loosely organized network of terrorist groups. There has been an increasingly concentration of attention today as in the past on the Middle East and on Islamic groups. At times this focus on the Middle East or Islamic organizations has been mistakenly taken to the extreme, so that analyses exclude groups whose driving force is ideology, ethnicity, or some religious base other than Islam or exclude the present or past occurrence of terrorism in other parts of the world. As a result, the inability to view terrorism more broadly suggests, quite wrongly, that terrorism is uniquely Middle Eastern or Islamic (Lutz and Lutz 2004, pp. xiii-xiv, 3-4). Terrorism, in fact, has been a widespread phenomenon that predated 2001, and it has affected many parts of the world. Europe and Latin America experienced a wave of leftist terrorism that began at the end of the 1960s and lasted until the end of the 1980s and the demise of Communism in Eastern Europe and in the old Soviet Union (Lutz and Lutz, 2005, Chap. 9; Rapoport 2006; Waldmann 2005). The Basque nationalists (ETA) and the IRA have operated for very long periods of time. Asia has seen extensive terrorist violence, often combined with guerrilla action, in Sri Lanka, Kashmir, the Punjab, and Indonesia (Chalk 1998b; Lutz and Lutz 2005, Chap. 10; Tan 2000). Violence by extreme nationalist groups against foreign immigrants and foreign cultures has increased in Europe in the years after 1990 (Bjorgo 1997; Brannan 2006; Wilkinson 2003, p. 119). The only connections these right-wing groups have had to the Middle East and Islam has been that some of their attacks have been against migrants from the region. Violent dissident groups from many countries have frequently chosen targets in third countries, internationalizing the terrorism. Kurdish groups have attacked Turkish targets in a variety of European countries, and anti-Castro Cuban groups have launched attacks on Cuban diplomatic offices or other symbols of the regime in a number of Latin American countries. …