Key Words: Latin America, Terrorism, Tourism, Direct Foreign Investment

321 International Terrorism in Latin America: Effects on Foreign Investment and Tourism James M. Lutz * Brenda J. Lutz Indiana University-Purdue University at Fort Wayne It has been suggested that terrorist attacks can have serious economic consequences for the countries where the attacks occur. An analysis of 23 countries in Latin America between 1969 and 1988 indicated that incidents of terrorism had only modest negative effects on foreign direct investment in these countries even though foreign operations of multinational corporations were frequent targets in this period. The tourist sector, however, was more susceptible to negative influences from terrorist violence. Key Words: Latin America, Terrorism, Tourism, Direct Foreign Investment Introduction In recent years, major terrorist attacks have had a many effects on political systems, economic systems, and societies in general. Among the possible consequences of terrorism is the potential for such incidents to disrupt both domestic and international economic interactions. Among the potential effects that terrorist violence can have would be declines in foreign direct investment and reductions in tourist visits to the countries that have faced greater levels of terrorist violence. These negative effects of terrorism might vary depending upon a number of circumstances, including the frequency and severity of attacks, and other factors such as the types of targets chosen. While the potential for economic disruption is clearly present in the twenty-first century, it is important to assess the economic effects of attacks in the past as well. The analysis to follow will attempt to measure some of the international economic impacts of terrorist attacks in twenty-three Latin American countries during the twenty years between 1969 and 1988, and to determine if the countries suffering from greater levels of international terrorist activity actually did experience greater negative economic effects. * Department of Political Science, Indiana University-Purdue University at Fort Wayne, Fort Wayne, IN 46805-1499, Address for correspondence: Dr. James M. Lutz, Department of Political Science, Indiana University-Purdue University at Fort Wayne. Fort Wayne, IN 46805-1499 Email: HYPERLINK mailto:lutz@ipfw.edu lutz@ipfw.edu Volume 31, Number 3, Fall 2006

322 James M. and Brenda J. Lutz Prevalence of Terrorism Since the disasters of September 11, 2001 and the beginning of the war on terrorism, the dangers and implications of violent attacks by dissidents have been widely discussed. Much of the recent focus has justifiably been on Al Qaeda and the efforts being made to find and destroy this loosely organized network of terrorist groups. There has been an increasingly concentration of attention today as in the past on the Middle East and on Islamic groups. At times this focus on the Middle East or Islamic organizations has been mistakenly taken to the extreme, so that analyses exclude groups whose driving force is ideology, ethnicity, or some religious base other than Islam or exclude the present or past occurrence of terrorism in other parts of the world. As a result, the inability to view terrorism more broadly suggests, quite wrongly, that terrorism is uniquely Middle Eastern or Islamic (Lutz and Lutz 2004, pp. xiii-xiv, 3-4). Terrorism, in fact, has been a widespread phenomenon that predated 2001, and it has affected many parts of the world. Europe and Latin America experienced a wave of leftist terrorism that began at the end of the 1960s and lasted until the end of the 1980s and the demise of Communism in Eastern Europe and in the old Soviet Union (Lutz and Lutz, 2005, Chap. 9; Rapoport 2006; Waldmann 2005). The Basque nationalists (ETA) and the IRA have operated for very long periods of time. Asia has seen extensive terrorist violence, often combined with guerrilla action, in Sri Lanka, Kashmir, the Punjab, and Indonesia (Chalk 1998b; Lutz and Lutz 2005, Chap. 10; Tan 2000). Violence by extreme nationalist groups against foreign immigrants and foreign cultures has increased in Europe in the years after 1990 (Bjorgo 1997; Brannan 2006; Wilkinson 2003, p. 119). The only connections these right-wing groups have had to the Middle East and Islam has been that some of their attacks have been against migrants from the region. Violent dissident groups from many countries have frequently chosen targets in third countries, internationalizing the terrorism. Kurdish groups have attacked Turkish targets in a variety of European countries, and anti-castro Cuban groups have launched attacks on Cuban diplomatic offices or other symbols of the regime in a number of Latin American countries. Attacks against exiles by groups or agents working for their home governments have been common. National embassies in foreign countries may be a potential target for dissidents, as are the offices of national airlines. The embassies or airline offices are often more vulnerable than key institutions at home, which may be heavily guarded. Further, an attack on a target in a democratic country The Journal of Social, Political and Economic Studies

International Terrorism, Foreign Investment and Tourism in Latin America 323 may have greater publicity-value than an attack in the home country. Countries can also be chosen for such attacks because they are a convenient location or a particularly vulnerable location. Al Qaeda selected Kenya and Tanzania for the 1998 embassy attacks because of the ease with which the attackers could blend in with the local population and the relatively limited security resources of the two countries. Economic Effects of Terrorism Terrorist attacks have economic consequences. Some of the consequences are largely unintended, as happens when money is diverted to police forces or to increased physical security from other programs. In other cases, dissidents directly attack economic targets in much more conscious effort to undercut the economy of a particular state. Further, a major outbreak of terrorism can hinder economic activity in a country in other ways. Foreign investors may withdraw, visitors stop coming, and trade can be disrupted. Terrorism is ultimately a form of psychological warfare, and as such it is designed to change the behavior of target audiences (Chalk 1996, p. 13; Gaucher 1968, p. 298; Hoffman 2002, p. 45). This target audience may (or may not) be defined by economic criteria. Negative economic consequences may be intended by the terrorists, but even unintended economic fallout from terrorism can be significant. Dissidents have targeted foreign investors in the past. Foreign investment in any country will normally provide additional resources for the government in power, and major investments that provide employment opportunities and that spread the economic benefits to the local economy may serve to reduce levels of popular discontent that the dissidents draw upon or hope to draw upon in support of their cause. There have been cases where dissidents have consciously sought to drive out foreign investors in order to prevent an improvement in local economic conditions. For example, the IRA attacked foreign investors in Northern Ireland with such a goal in mind (Drake 1998, p. 57). Similar efforts have been made by groups in Malaya after World War II (Chalk 1998b, p. 120), Banda Aceh in Indonesia (Schulze 2003, p. 260), Algeria (Willis, 1997, pp. 282-84), and Colombia (Nitsch and Schumacher 2004, p. 425n). In Latin America, Carlos Marighella, a leftist theoretician, argued that it was necessary to attack investors to increase the likelihood and severity of economic downturns (Laqueur 1977, p. 185). In the 1960s, urban guerrillas in Brazil consciously sought Volume 31, Number 3, Fall 2006

324 James M. and Brenda J. Lutz to implement his approach as part of an effort to weaken the national economy (Beckett 2001, pp. 175-6). Leftists also kidnapped executives of foreign businesses in many parts of Latin America, especially in Argentina. The kidnappings not only made statements about foreign investment and global capitalism but also raised large amounts for funds for the dissidents from the ransoms that were paid (Bell 1997, p. 230). In other cases, while foreign operations have not been attacked directly, there have been indications the underlying levels of terrorism have led to significant declines in the levels of incoming foreign investment (Enders and Sandler 1996). Interestingly enough, while Latin American leftists launched attacks against foreign investors, the European leftist groups virtually never chose multinational investors as economic targets, although they were sometimes chosen as symbolic targets (Lutz and Lutz 2006, p. 14). One of the most effective targets for terrorists in their efforts to create economic problems has been the tourist industry. Attacks on tourists demonstrate the potential for economic disruption to occur, and the disruptions may be exactly what is planned by the terrorist groups. Tourists bring in foreign exchange that may help the local economy prosper and generate significant tax revenues. The attacks can dramatically interfere in this revenue flow by discouraging individuals from booking vacations in lands that are experiencing terrorist incidents, especially when tourists are the targets of the attacks. In Egypt, dissidents have attacked tourists as part of a campaign against the government in an effort to create economic damage (Alam 2003, pp. 138-39; Nedoroscik 2002, p. 47). The 1997 attack at Luxor was followed by a 53% decline in tourist revenues (Gurr and Cole 2000, p. 88). There have been even more recent attacks against tourists in the spring of 2005 in Egypt. The Kurds have intentionally struck at the tourist industry in Turkey in an effort to hurt the local economy. Attacks on tourists in Turkey, Greece, or Israel have led to a redirection of tourist visits to countries that have not been the scene of such actions (Drakos and Kutan 2003). The Filipino group Abu Sayyaf s attacks in Southeast Asia have degenerated into kidnappings for financial gain rather than to achieve political objectives, but tourism in the region has nonetheless suffered (Thayer 2005, p. 88). The deadly attack in Bali in 2002 led to a drop in tourism (Putra and Hitchcock, 2006, p. 160). There was a loss of 10% of the value of the stock exchange in Jakarta as investors contemplated a downturn in the tourist sector for Indonesia. The loss to the Indonesian economy was approximately 1% of GDP (Abuza 2003, p. The Journal of Social, Political and Economic Studies

International Terrorism, Foreign Investment and Tourism in Latin America 325 3). In Kashmir, the local economy suffered greatly when guerrilla and terrorist violence in that province virtually destroyed the tourist trade that catered both to Indians from elsewhere in the country and foreign visitors (Schofield 2003, pp. 185-66, 196-98). In the cases of Algeria, Kashmir, and Indonesia, the effects on the tourist industry and local economy may have been incidental to attempts to drive out foreign influences that were contaminating the local societies, but they were important nonetheless. In Uruguay the Tupameros threatened tourists in the early 1970s, especially Argentine visitors as part of a broader effort to further weaken the struggling Uruguayan economy (Butler 1976, p. 55). The Basque nationalists in the ETA in Spain, on the other hand, consciously struck at the tourist industry in efforts to hurt the Spanish economy. Unlike some of the other terrorist organizations, however, the Basques were very careful to avoid causing casualties. Tourist facilities were bombed in the off-season to make sure injuries were minimal, but the terrorists were still able to send a message that vacations in Spain would be dangerous. Studies have indicated that the Basques dissidents were quite successful in hurting the Spanish tourist industry with these attacks (Chalk 1998a, p. 380; Enders and Sandler 1991). Needless to say, attacks on tourists have become increasingly important in recent years, becoming one of the favorite targets of various terrorist groups. It is possible that the decreases in tourism in a number of countries might also lead to declines in FDI as foreign companies will have less need to invest in hotels and related activities (Putra and Hitchcock, 2006, p. 160). Methodology and Parameters of the Study The analyses to follow will focus on investment flows and tourism for a number of Latin American countries. The countries included in the analysis were the twenty-three Latin American countries that were already independent in the 1960s (Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Surinam, Trinidad and Tobago, Uruguay, and Venezuela). The smaller islands that became independent later were not included. Cuba was also excluded, since there was virtually no information on terrorist attacks within the country or data on foreign investment or tourism. Latin America in this period provides an excellent region for the analysis of relationships between international economic activity and terrorism. It was a period during which there was Volume 31, Number 3, Fall 2006

326 James M. and Brenda J. Lutz a reasonably large number of international incidents that occurred in most countries in the region. In fact, this period roughly corresponds to Rapoport s (2006, pp. 9-10) New Left wave of terrorism, one with significant elements of internationalism involved. Most of the international incidents involved groups with leftist ideologies, although there were attacks by other types of groups as well. There were also campaigns of domestic terrorism in his era that unfortunately could not be included due to limitations in the data base, but most of the major domestic groups such as the Montoneros and ERP in Argentina, the Tupemaros in Uruguay, various leftist groups in Colombia and Venezuela, and Shining Path in Peru targeted both domestic groups and foreign interests. In the case of foreign direct investment, it was anticipated that higher levels of terrorism should be associated with reductions in investment. Prudent investors might be tempted to look elsewhere for opportunities. As a consequence, changes in the levels of FDI flowing into the Latin American countries will be calculated and correlated with previous levels of terrorist activity. One indication of such effects is that overall FDI in 2001 was down compared to 2000 for the world in general. 1 The percentage drop was 50.7% (United Nations Conference on Trade and Investment 2003, p. 303), and most of the industrialized countries had declines in both inflows and outflows. This major drop in investment from all countries reflected a decrease in confidence in the safety of foreign operations that would appear to be a direct result of the attacks on the World Trade Center and the Pentagon. In the case of foreign direct investment, the total annual FDI flows were standardized by national GNP to reflect the absorptive capacity of national economies 2. Larger or richer countries would have the capacity to attract more foreign investment than smaller or poorer countries. The change in flows was the measure utilized, but with a control of economic size. Terrorism was also correlated with measures of tourist revenues. If tourism were negatively affected by terrorism, revenues would fall off in subsequent years. No attempt was made to place the revenues on a per capita or other relative basis. Tourist revenues are affected by existing amenities and natural attractions. 3 Standardization was present in one 1 FDI dropped from $1,491.9 billion to $735.1 billion between 2000 and 2001 (United Nations Conference on Trade and Development, 2003). 2 The levels of FDI in each of the countries are calculated from World Investment Report (United Nations Conference on Trade and Development, various issues). 3 Tourist revenues were available from the UN Statistical Yearbook (United Nations, various The Journal of Social, Political and Economic Studies

International Terrorism, Foreign Investment and Tourism in Latin America 327 sense, since it was the changes in total tourist revenues that were used as the dependent variable. As was the expectation with FDI, terrorism, all other things being equal, would lead to declines (or perhaps slower increases) in revenues if the sector were being affected by the violence. The data on terrorism comes from the MIPT database, which details acts of terror in individual countries from 1969 to 2004. 4 From 1968 to 1997 the database only includes such international incidents, and the data for 1968 appear to be incomplete. From 1969 forward, the data are much more complete. International incidents were considered to be attacks where: (1) the terrorist groups were from outside the country but chose targets inside another country (e.g., September 11 th in the United States or the London transit bombings); (2) a domestic terrorist group attacked a foreign corporation, official or tourists in their own country (e.g., the attacks by Egyptian terrorists against tourists, or the assassination of the CIA section chief in Athens by the 17 November Organization); or (3) when groups used the soil of a third country to attack their government or some other foreign government (Kurdish attacks on Turkish diplomats or businesses in Europe or attacks against Cuban embassies by anti-castro groups). From 1998 to the present, there are data on both domestic and international incidents in the database providing a measure of overall terrorist violence in various countries. It might not make a difference whether the terrorist incidents are domestic or international in scope, but it is somewhat more likely that international incidents would have more of an impact of foreign investors, especially if foreign operations become the targets for the dissidents, or perhaps even more of an effect on potential tourists. For the current analysis, data from 1969 to 1988 were used. This time-period represents one of high terrorist activity in many Latin American countries. While the data only includes international incidents, these attacks, as noted, would probably be more pertinent to foreign observers. The MIPT database provided three variables that could be used in the analyses to follow. The total number of international incidents per year could be ascertained for each country 5, as well as the number of years). 4 The Memorial Institute for the Prevention of Terrorism (MIPT) database is available on line, providing information on incidents by country and by region beginning in 1968 (with the limitations noted above in the text). The database incorporates the data collected earlier by St. Andrews University. 5 For those years in which a country had no incidents or no casualties, the totals were recorded as Volume 31, Number 3, Fall 2006

328 James M. and Brenda J. Lutz people killed and the number of people injured per year. Most terrorist attacks in the world actually do not cause deaths or injuries, since the violence involves property rather than people (Stohl, 2003, p. 86). Fatal incidents or incidents with large numbers of wounded are rarer, but then these attacks could have greater impacts. As a consequence, the total number of attacks per capita, the total number of deaths per capita, and the total number of wounded per capita were recorded for use in the analyses. In the case of tourism, one study discovered that campaigns of attacks have more negative effects than a smaller number of major attacks (Pizam and Fleischer 2002). A similar situation could have been present in the case of terrorism in Latin America in general or more deadly attacks could have had greater effects. The measures of terrorist violence in a given year were correlated with FDI flows and tourist revenues for each of the following three years. Thus, the per capita measures of terrorism in 1969 were correlated with changes in FDI flows between 1969 and 1970 (t + 1), 1969 and 1971 (t + 2), and 1969 and 1972 (t + 3). Changes in tourism receipts were also correlated with the terrorism measures for t + 1, t + 2, and t + 3 time periods. Terrorist incidents could reasonably be expected to have short-term effects on tourism and perhaps some longer-term ones, as well. In the case of FDI, any effects might take longer to appear. Although there were checks for potential effects over time, there remain a variety of potentially confounding factors that could influence tourist revenues and FDI (in addition to the occurrence of terrorist attacks). The analysis to follow, however, should indicate whether this particular form of political violence influenced these international economic activities and to what extent. Results The first test for the effects of terrorism included the correlation of the three per capita variables of terrorism (incidents, injuries, and deaths) with the changes in flows of FDI standardized by the size of the economies of the twenty-three countries for the subsequent three years. While the economic size of the various countries could be affected by flows of FDI (which could in turn be affected by terrorist violence in a feedback loop), such effects would be likely to require a number of years before they would show up in the national economies. The results of the correlations can be seen in Table 1. The results 0.1 instead of zero to take into account the fact that no incidents in a large country such as Mexico or Brazil would be more meaningful than no incidents in a small country such as Panama or Guyana. The Journal of Social, Political and Economic Studies

International Terrorism, Foreign Investment and Tourism in Latin America 329 from the 20 sets of correlations are clearly inconsistent. Only about one in six of the correlations were significant in the predicted direction, not an especially large percentage. The early 1980s were the one period where there was a cluster of such predicted associations, suggesting that this era was one in which the effects on FDI from terrorists actions was the greatest. It is possible that there was greater investor sensitivity in this period, perhaps reflecting activities of terrorist groups around the world with fallout that reduced investor confidence in those areas of Latin America where international incidents had occurred. It was at the beginning of the 1980s that the Red Brigades were extremely active in Italy, the Red Army Faction was operating in West Germany, and there were other leftist groups mounting occasional attacks in Spain, France, Portugal, Greece, and elsewhere. Of the three measures of terrorist activities that were used, the per capita fatalities had some of the strongest negative correlations (1975 and 1983), providing limited evidence that the more violent attacks in this period had the greatest effects on investment flows. There was no evidence that the number of incidents or overall level of terrorism was more important in deterring foreign investors as compared to the severity of the attacks that occurred. Interestingly enough in Table 1, the associations in the predicted direction were somewhat more likely to occur in the first year after the incident, indicating that if the investors responded to terrorism, it was as an initial response rather than as a long-term one. A number of other measures of foreign investment were used with the three terrorists measures in addition to the annual FDI flows to determine if different types of foreign investment were more sensitive to terrorist activities. The level of terrorism in earlier years was correlated with total foreign investment, all long-term investment, and all shortterm investment. None of these additional analyses had results that matched the modest findings in Table 1. What was perhaps the most surprising with these additional analyses was the absence of negative associations between terrorist attacks and the short-term investment measure. It was logical to expect that it would be the short-term investments that would be more sensitive to terrorist incidents, since long-term investors would have had greater sunk costs. It is possible, on the other hand, that short-term investors would have less at stake in particular countries in many cases and, therefore, might be willing to let higher rates of return compensate for the problems caused by terrorism. Short-term investors are also less likely to be present themselves or to have company personnel on the scene in foreign countries, since much Volume 31, Number 3, Fall 2006

330 James M. and Brenda J. Lutz of the investment activity can be at arm s length, further limiting the potential effects of terrorist violence. In any event, it was the FDI investment that was most affected by episodes of international terrorism. The three measures of terrorist activity were correlated with changes in tourist receipts for the following three years for the timeperiod in question. The results contained in Table 2 for these analyses are much stronger than the corresponding results for FDI flows (see Table 2). There were approximately three times as many significantly negative correlations for the same period of time as was the case for foreign investment. These negative associations were strongest in 1969 and 1970, 1978 and 1979, and in 1988 6. For whatever reason, in some years tourist plans were more sensitive than in others. The differences could relate to the groups involved in the attacks or to the types of targets that were chosen. 7 These years were also not the same years where the effects on FDI were the greatest, suggesting different reactions to terrorism in different economic sectors, perhaps because of the targets. The negative effects on tourist flows were strongest in the year following the incidents (t + 1) and the year after that (t + 2) than in the third year, indicating that the negative influences tended to be more immediate (much as was the case for the effects on FDI flows). In the case of tourism, some of the strongest of the negative associations were between the number of incidents per capita and receipts, indicating that for the tourism sector the number of attacks rather than their severity was indeed more important in at least some cases, in keeping with evidence from other studies. The results indicate that for Latin America in this period tourism was more vulnerable to economic disruption than foreign investment activity. The vulnerability of the tourist sector seems to have become obvious to many terrorist groups in recent years, as indicated in the discussions above; but it is a bit surprising that the effects were present in Latin America in the 1970s and 1980s. Targets were frequently foreign businessmen or foreign plant managers, but tourists were more affected than the investors who were the intended target audience. The 6 These measures of total investment were available through 1988, so the analyses could not be carried through quite as far in terms of effects three years later. The way in which foreign investment totals were reported in the UN Statistical Yearbook (United Nations, various years) changed beginning in 1989 making the calculation of investment flows impossible for the years at the end of the period. 7 Unfortunately, the groups launching the attacks could not always be identified, and it also is difficult to classify targets in all cases; therefore, analyses for differences due to these factors were not possible. The Journal of Social, Political and Economic Studies

International Terrorism, Foreign Investment and Tourism in Latin America 331 damage to levels of tourist receipts was a by-product of attacks on other types of international targets in the countries in question. The strength of the above findings, however, would strongly confirm the serious consequences that the targeting of tourists as primary targets can have in economic terms, since even international terrorist attacks in other areas had negative effects. Many terrorist organizations are very much aware of the vulnerability both of tourists as the immediate targets of violence and the tourism sector as an economic target (Lutz and Lutz 2006, pp. 14-15). The Latin American terrorists may not have intended these consequences, but the results of the attacks indicates that such effects were present for a number of years in this period. Implications and Conclusions It was somewhat surprising that the correlations for tourism provided so much more evidence for the negative effect of terrorist incidents on economic targets than was the case for FDI (or other measures of investment). The period under analysis was not one in which tourists or tourism were the intended targets in Latin America. Investment was the obvious target, but the spillover into the tourist sector proved to be important. There are a number of possible reasons why terrorist attacks were more important for tourism than for investment. First, it is likely that the influences on foreign investment decisions are more complex than those for tourists. While investors will no doubt take terrorist activity into account, they will weigh the attacks in the context of other considerations. The costs of the terrorist actions for multinational corporations, for example, might have been bearable. Violent activity may even lead to premiums in the rate of return on certain kinds of investment as local businessmen or governments make concession to foreign investors due to increased risk. It is also possible that the foreign investment in Latin America had been present for such a long time that the terrorist incidents had less effect. It is also possible that the levels of international terrorism would perhaps have to rise above a particular threshold, either in Latin America or in general, in order for the direct effects on FDI to become obvious. More limited attacks could perhaps have a greater effect in regions of the world with less foreign investment history. It was suggested early on that terrorism did not greatly affect foreign investment in general, although it did have significant localized impacts in places such as the Basque region in Spain or in Northern Ireland (Crenshaw 1983, p. 6n.) The effects of violent attacks on FDI Volume 31, Number 3, Fall 2006

332 James M. and Brenda J. Lutz might have been obscured by the absence of data on domestic incidents and casualties. Most terrorism can be classified as domestic; thus, only a small portion of terrorist attacks are considered international (Wilkinson 2000, p. 45). There would be no reason, however, to expect investment to be more sensitive to domestic terrorism than was the case for tourism or that investors would be more sensitive to domestic terrorism than to international terrorism. Also, the fact that domestic and international terrorism were linked in most countries would have meant that international incidents were a reasonable surrogate for domestic ones. The international attacks were, after all, usually extensions of domestic conflicts. Potential tourists might have responded more negatively to the international terrorist incidents for two reasons. First, tourists generally have more flexibility in terms of changing destinations with limited notice. Foreign investors building a plant or an integrated assembly line over the course of five years may feel compelled to continue the investment flow already undertaken. If the investment is in the natural resource sector, the alternatives may be limited for a particular company. Further, if the investment is intended as a means around barriers to imports, then choosing another country is not really a viable option in many cases (absent some sort of customs union). The second reason the above analyses found that tourism was more affected could be related to the data source. The MIPT data compilation relies on information on media accounts for the incidents and casualties. While media accounts in all likelihood will imperfectly represent the actual levels of violence present, potential tourists, as well as the tourist sector in countries of origin of the tourists, are more likely to be aware of or rely on these media accounts. Companies with significant foreign investment funds are able, however, to undertake a more sophisticated political risk analysis of the potential host countries. Such analyses would surely consider terrorist incidents in more depth than media reports and would take into account other factors as well. Political risk analysis would also clearly distinguish between an isolated international attack representing a target of opportunity (the US embassy attacks in Kenya and Tanzania in 1998) as opposed to a series of incidents over a period of years. Since the data base itself draws upon information that is most likely to be the major source of information available to tourists, it is perhaps not surprising that the results were as strong as they were for this form of international economic activity. Overall, the analyses for Latin America did indicate that terrorism The Journal of Social, Political and Economic Studies

International Terrorism, Foreign Investment and Tourism in Latin America 333 can have negative economic impacts. The evidence was not overwhelming for FDI, but at least in some circumstances investment was negatively affected. Since foreign investment responds to a variety of push and pull factors, no one variable will explain all changes in such activity. Terrorism, however, should be added to the list of important concerns, at least for the present time. The tourist sector, even in Latin America and even in this time-period, was more vulnerable. A variety of terrorist groups in other parts of the world have realized this, as indicated by attacks in Bali and Egypt and elsewhere, but the effects were present even earlier. There was already reason to expect attacks on tourists to increase, and the results from this analysis would reinforce that conclusion. It is also possible that there is some threshold level of terrorist violence that has to be in play to affect foreign investment. How effective targeting economic activities has been, and will be, will depend upon additional studies for other regions and other time periods. There is much research to be done. Volume 31, Number 3, Fall 2006

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