foreign countries [that are] close to home”. However, even if the third country location is decreasing, it is still highly variable and thus could still matter as much as incidents in origin and target countries for detecting the impact on counter-security measures and trade between them.

It remains that all the trade cost effects of ’bilateral’ terrorism, and/or terrorism located in third countries are yet to be investigated.

## **D/ Endogeneity Problems between Terrorism and Trade**

Finally, it should be notice that, consistent with our system (4), (5), (6) and (7), an important issue is the endogeneity between transnational terrorism and trade flows. This happens for two reasons. First directly, terrorist events are the purposeful outcomes of terrorist organizations which operate in a given socio-economic environment. As already mentioned in section 2, trade openness and globalization may affect in diverse ways this environment. Second, the costs or transnational terrorism come as much from terrorist events as from the security measures which are implemented by governments to counteract terrorism. This as well, is an endogenous decision which could be affected by the economic environment of the country. In both cases therefore, trade flows can affect observed terrorist’s outcomes. The next two sections discuss in more details these two dimensions.

# **4 The reverse impact of openness on terrorism**

Our conceptual framework provides many mechanisms for why openness and trade integration in particular may have effects on transnational terrorist activities. From this framework two questions arise: 1/ is the relationship empirically positive or negative? and 2/ which channels are the most relevant? Political scientists and international relations scholars have discussed these questions extensively (see for instance, Midlarsky, Creenshaw and Yoshida 1980, Matthews and Shambaugh 1998, Crenshaw 1981, Martin 2001).

Li and Schaub (2004) is a recent quantitative analysis of the impact of globalization on transnational terrorism. The estimation sample covers 112 countries from 1957 to 1997 and they use the ITERATE data base to construct a dependent variable which is the number of transnational terrorist event that occur in a country in a year. They capture international integration with three variables: trade openness (measured as the annual sum of exports and imports over GDP), FDI flows (as the sum of absolute values of inflows and outflows over GDP) and portfolio financial flows (the sum of a country’s financial flows in equity and debt securities over GDP). They also control for the level of democracy of the country, a composite proxy for the state capability of a country to fight terrorism and a measure of interstate military conflict. Two main results emanate from this study. First, international integration variables do not seem to affect significantly the number of terrorist activities occurring in a country. In other words, greater economic integration of a country does not seem to cause more transnational terrorist accidents within its borders. Second, a country’s GDP per capita affects negatively and significatively the number of terrorist events within its borders. More precisely, a 1% increase in the GDP per capita of a country decreases the expected number of transnational terrorist incidents within the country by 19,3%, holding all other variables constant. The interpretation 19