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IMPACT OF TERRORISM ON BILATERAL TRADE BETWEEN CHINA AND FIVE CENTRAL ASIAN COUNTRIES: BASED ON AN EXPENDED GRAVITY MODEL
Boyan Shang

ABSTRACT. The Central Asian countries are not only the important route of "The Belt and Road", but also significant importers of energy and resources. Now, the most effective factor to the security and stability in the region is terrorism. To explore the impact of terrorism on bilateral trade between China and five Central Asian countries, this article extended the gravity model based on panel data, added the number of terrorist attacks and casualties to the model as independent variables. Through the econometric model, we find that the number of terrorist attacks is negatively correlated with the total trade volume and the export volume, which is significant, but not elastic. The impact of casualties to bilateral trade scale are negative impact, but not significant. Overall, terrorism has a negative impact for the bilateral trade between China and Central Asia, but less affected, so we consider there is a comparative advantage in China, so China needs take the current advantage to develop trade with Central Asia vigorously. At the same time, multiple exchanges in economic and cultural should be paid attention to. China also needs strengthen international cooperation against terrorism, make more protection to the key facilities in local, and explore to establish trade insurance under the framework of international cooperation system on terrorism.

KEYWORDS:  terrorism, Panel data, Bilateral trade, trade gravity model.

JEL classification:  M14, M19, P2.