Second, we use the ITERATE dataset set-up by Mickolus, Sandler, Murdock and Flemming (2003) which reports transnational terrorist activities. More precisely, ITERATE is an event-based dataset that provides information on the date, country of localization of the attack, its origin and the targeted country. It lists all of the incidents in the world that have been reported in the medias since 1968 onwards. We are mainly interested in those attacks where the US has been the main target, via its representative authorities, its army or its civilians anywhere in the world.

Third, in order to prove that at least a part of the impact of terrorism is indeed translating through counter-security measures, we use a dataset from the Department of State reporting the number of business visas issued by the United States to each partner country from 1997 to 2002. We are in interested here in linking the attacks to visas issuance across countries and thereby, to the induced impact on trade in network related products.

Our empirical results are then the following. First, past terrorist events against the US, perpetrated by groups from a given country, affect negatively American imports from the latter. The effect is statistically significant but relatively small on average. Indeed a 1% increase in past terrorism activities from a country reduces US bilateral imports by around 0.01%. This negative effect is nonlinear however. 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 (or Pakistan and Saudi Arabia in recent years) results in around 0.5 to 1% decrease in their exports to the US.

Second, and consistent with our theory, the impact of _past_ terrorism on _current_ US imports is higher when the partner country is small in terms of its GDP size. Besides, the level of the impact more than doubles (and hence reaches more than 1 to 2% in the case of Colombia, or more recently Pakistan) when the acts result in a relatively high number of victims and for products that are sensitive to the time-length of shipping and network-lengths.

Third, our paper shows how terrorism incidents affect the number of business visas delivered by the US, thereby impacting significantly bilateral US imports, specifically in differentiated products. This last result therefore suggests a clear channel through which counter terrorist security reactions may affect differentially bilateral trade flows across US trading partners and across products.

There is a significant literature on the economic consequences of terrorism attacks, although not focusing on the impact of counter-security measures. In a nice survey, Frey, Luechinger and Stutzer (2004) mention some studies that look at the impact of terrorism on different channels of globalization (tourism, air transport and foreign direct investment). Abadie and Gardeazabal (2005) look also at the impact on the world economy through foreign direct investment. They argue that the risk of terrorism in a country reduces the expected return to investment while increasing its variance. They show that a one standard deviation increase in the risk of terrorism in a country reduces its net 4