Skip to main content Accessibility help
  • Get access
    Check if you have access via personal or institutional login
  • Cited by 39
  • Print publication year: 2008
  • Online publication date: July 2010

4 - The Lexus and the Olive Branch: Globalization, Democratization, and Terrorism


This chapter provides an original study into how democratization and globalization influence terrorism, examining the motives of terrorists and how democratic institutions and international integration influence nonstate economic actors. We employ a gravity model to investigate the relative importance of globalization and democratization on transnational terrorism. We construct an original database of more than 200,000 observations from 1968 to 2003 for 179 countries to examine the extent to which economic, political, and historical factors influence the likelihood of citizens from one country to engage in terrorist activities against another. We find that the advent of democratic institutions, high income, and more openness in a source country significantly reduce terrorism. However, the advent of these same positive developments in targeted countries actually increases terrorism. Ceteris paribus, the effect of being a democracy or participating in the WTO for a source country decreases the number of transnational terrorist strikes by about two to three per year, which is more than two standard deviations greater than the average number of strikes between any two countries in a given year.


World foreign direct investment flows (FDI), which amounted to less than $13 billion in 1970, quadrupled every ten years, reaching $54 billion in 1980 and $209 billion in 1990. During the last half of the 1990s, however, FDI practically exploded, reaching a peak of $1.4 trillion in 2000. Worldwide trade also increased dramatically over the same time period.

Related content

Powered by UNSILO
Anderson, J. 1979. “A Theoretical Foundation for the Gravity Equation.” American Economic Review 69(1): 106–116.
Anderson, J., and Marcouiller, D. 2002. “Insecurity and the Pattern of Trade: An Empirical Investigation.” Review of Economics and Statistics 84(2): 342–352.
Beck, Thorsten, Clarke, George, Groff, Alberto, Keefer, Philip, and Walsh, Patrick. 2001. “New Tools in Comparative Political Economy: The Database of Political Institutions.” World Bank Economic Review 15(1): 165–176.
Blomberg, S. Brock, and Hess, Gregory D.. 2007. “How Much Does Violence Tax Trade?Review of Economics and Statistics 88(4): 599–612 (October).
Blomberg, S. Brock, and Gregory D. Hess. 2007. “From (No) Guns to Butter.” This volume.
Blomberg, S. Brock, and Ashoka Mody. 2005. “How Severely Does Violence Deter International Investment?”, mimeo.
Blomberg, S. Brock, Hess, Gregory D., and Orphanides, Athansios. 2004. “The Macroeconomic Consequences of Terrorism.” Journal of Monetary Economics 51(5): 1007–1052.
Crenshaw, Martha . 1981. “The Causes of Terrorism.” Comparative Politics 13(4): 379–399.
Crenshaw, Martha . 2001. “Why America? The Globalization of Civil War.” Current History 100(650): 425–433.
Friedman, Thomas . 2000. The Lexus and the Olive Tree. New York: Anchor Books.
Glick, Reuven, and Alan Taylor. 2004. “Collateral Damage: The Economic Impact of War,” mimeo.
Krug, Barbara, and Patrick Reinmoeller. 2004. “The Hidden Cost of Ubiquity: Globalisation and Terrorism,” mimeo, October.
Laitin, David, and Jacob Shapiro. 2007. “The Political, Economic and Organizational Sources of Terrorism.” This volume.
Li, Quan . 2005. “Does Democracy Promote or Reduce Transnational Terrorist Incidents?Journal of Conflict Resolution 49(2): 278–297.
Li, Quan , and Drew Schaub, . 2004. “Economic Globalization and Transnational Terrorist Incidents: A Pooled Time Series Cross-Sectional Analysis.” Journal of Conflict Resolution 48(2): 230–258.
Mickolus, Edward F., Sandler, Todd, Murdock, Jean M., and Fleming, Peter. 1993. International Terrorism: Attributes of Terrorist Events, 1988–1991 (ITERATE 4). Dunn Loring, VA: Vinyard Software.
Mickolus, Edward F., Todd Sandler, Jean M. Murdock, and Peter Fleming. 2002. “International Terrorism: Attributes of Terrorist Events (ITERATE).” Vinyard Software, codebook.
Nitsch, Volber , and Dieter Schumacher, . 2004. “Terrorism and International Trade: An Empirical Investigation,” European Journal of Political Economy 20:423–433.
Rose, Andrew . 2004. “Do We Really Know that the WTO Increases Trade?American Economic Review 94(1): 98–114.