the idea that the higher is the number of incidents against the US compared to the total number of world incidents in the last years, the lower is the US efficiency to implement security measures that safeguards its citizens and interests over the world. The second is the frequency of past incidents perpetrated by terrorist groups from a given source country in the past, capturing the degree of ”technology” efficiency of terrorist group in a given ”source” country. An upward shift of any of these variables is expected to help identify the ”exogenous” impact of transnational terrorism on bilateral trade through he channel of bilateral counter terrorist policies.

However, recognizing the endogenous relationship that may exist between these terrorism shares and bilateral trade, the authors choose to work with a particular set of incidents that should be much more exogenous to security and trade. Those incidents are past terrorist events located in third countries. Indeed one may expect observations on the share of incidents located in third countries against US interests to be even better instruments for security, and hence should better inform on the true impact of terrorism on security and trade. The main reason is that terrorism in third countries should be much less correlated with insecurity-related events specific to the ”source” country, the latter known to be also affecting bilateral trade.

The dependent variable used in the regressions is bilateral US imports in the period 1968-2000 at the product level (SITC4/5 digits) from the NBER World Trade Data complied by Feenstra and Lipsey. It is completed by the FLUBIL trade dataset from the French National Institute (INSEE) which is basically an updated version to 2003 of the OECD dataset on bilateral trade flows. Data at the product level are important for two reasons: First, they are used to control for the relative specialization of countries which are suspected to be correlated with both measures (see section 2), bilateral trade and terrorism activities; Second, they are useful to test the expected differential impact of security measures across goods. In fact, the goods that are very sensitive to shipping time or the mobility of businessmen across countries are expected to be much more affected by counter-security measures against terrorism.

Three important results come from the empirical analysis. First, past terrorist acts against the US, perpetrated by groups from a given country, affect significantly American imports from the latter. The effect is nonlinear, however. It is relatively small on average: a 1% increase in past terrorism activities from a country reduces by around 0.01% US imports. But the elasticity is higher the riskier is the country of origin in terms of its related frequency of incidents and the number of victims. In particular, a 1% increase of past incidents from countries such as Colombia over the period results in a more than 1% decrease in their exports to the US. Also, and perfectly consistent with the theory, the past terrorism impact on US imports is higher when the partner country is small in terms of its GDP size.

Second, the level of the impact more than doubles (and hence reaches more than 2% in the case of Columbia) when the acts result in a relatively high number of victims and the products are sensitive to the time-length of shipping and network-lengths.

Finally, the authors identify explicitly one important channel through which anti-terrorist measures affect international trade of manufacturing goods. Using an additional dataset from the Department 22