Figure 1 plots that relationship for the US as the sole importer with all of its partners pooled over all SITC products and years (around 700,000 points). For the period 1968-2003 at the product level (SITC4/5 digits) it uses data from the NBER World Trade Data complied by Feenstra and Lipsey and the FLUBIL trade dataset from the French National Institute (INSEE) (basically an updated version to 2003 of the OECD dataset on bilateral trade flows). For each given year, product and partner, the coordinates are represented by bubbles which size varies with the total number of incidents emanating from each partner against the US over the last 5 years of observation<sup>4</sup> . We consider a stock rather than a flow measure of incidents here in order to wipe out some possible cyclical behavior of terrorism incidents. Besides, this helps removing partly the possible endogeneity over time that exists between terrorism activity and trade. Finally, the gap between observed and potential trade is to be measured by the deviation of each of the bubbles to the slope<sup>5</sup> . The figure does not provide any directly observable pattern consistent with our expectations. That is, the big bubbles are not systematically under the slope. Looking further to these figures one can only distinguish that most of the partners at the origin of a high number of incidents are also trading significantly with the US, precisely because of their high trade potential. Thus, the market access for imports seems also to be a market access for terrorism incidents.

Alternatively, and in order to find a way to sweep out some of the endogeneity, we may first compute and plot a slope of trade potential for those countries related to groups that have never hit the United States over the last 5 years. This would give the potential of trade with the US for what we shall call ’safe’ countries. In a second stage, we can plug into the picture all of the remaining observations corresponding to ’risky’ partners (i.e. those which hit the US over the last 5 years). From this we can ask the question of what would have been the volume of exports of those countries had they not been at the origin of the incidents. Figure 2 illustrates this procedure and provides a very clear pattern. Trade with those countries from which the incidents emanate is most systematically lower than their potential if they were to be safe countries. Now, there are many other alternative explanations for this finding: risky countries in terms of their activity of terrorism are likely to be also risky in absolute terms (i.e. bad governance, possible civil war, other political and army conflicts with the US, etc...). In any empirical analysis of the impact of terrorism on bilateral trade flows, one would need to condition out for many of these effects that may alter the relationship between trade and terrorism activities. This is what the recent empirical economic literature on the topic has tried to address.

# **3.3 Bilateral trade flows analyses**

Extending the work of Anderson and Marcouiller (1997, 2004) on the impact of insecurity on bilateral trade flows, several papers have estimated the impact of terrorist activities as a hidden tax on trade.

> 4We have also considered 3 years and 10 years stock of incidents where the figures remain very similar

> 5Along with the slope, we also represent confidence intervals curves

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