Impact of Terrorism on Financial Markets of Pakistan (2006-2008)

Topics: Terrorism, Foreign exchange market, Exchange rate Pages: 18 (6950 words) Published: February 8, 2013
Munich Personal RePEc Archive

Impact of Terrorism on Financial Markets of Pakistan (2006-2008) Gul , Tayyeba Gul; Hussain, Anwar Hussain; Bangash, Shafiqullah Bangash and Khattak, Sanam Waghma Khattak Pakistan Instittute of Development Economics Islamabad Pakistan


Online at MPRA Paper No. 41990, posted 16. October 2012 / 11:22

European Journal of Social Sciences – Volume 18, Number 1 (2010)

Impact of Terrorism on the Financial Markets of Pakistan
Tayyeba Gul MS Student, National University of Science & Technology (NUST), Islamabad Anwar Hussain Research Economist, Pakistan Institute of Development Economics (PIDE) Quaide-e-Azam University Campus, P.O Box 1091, Islamabad 44000 Shafiqullah Bangash Assistant Professor, Department of Economics, University of Peshawar, Peshawar Sanam Wagma Khattak Lecturer, Department of Economics, University of Peshawar, Peshawar Abstract The study is an effort to estimate the impact of terrorist activities on the financial markets in Pakistan over the period of two years i.e. 2006 to 2008. It also finds out the extent and direction of relationship between the terrorist activities and three financial markets of Pakistan, which are the Karachi Stock Exchange, the FOREX market and the Interbank market. After collection of the primary data for the terrorist activities on daily basis and the secondary data on the indicators of the three markets, by using the OLS model it attempts to quantify the impacts of various types of terrorists’ activities on financial markets. We have found during our analysis that the terrorist activities adversely affect the financial markets under study but the significance varies for different markets. Along with terrorist activities many other stochastic activities are responsible for the adverse performance of financial markets which have not been taken into account. The study recommends the policy stance on institutional development regarding investment in the innovative security industry and providing rosier environment for investors by altering the money supply and interest rates. Keywords: Terrorism; Financial Markets; KSE; KIBOR; FOREX Acronyms SBP KSE KSEI FOREX KIBOR ER FM PKR OLS STATE BANK OF PAKISTAN KARACHI STOCK EXCHANGE KARACHI STOCK EXCHANGE INDEX FOREIGN EXCHANGE KARACHI INTER BANK OFFER RATE EXCHANGE RATE FINANCIAL MARKET PAK RUPEE ORDINARY LEAST SQUARES


European Journal of Social Sciences – Volume 18, Number 1 (2010) But it then very soon became clear that the response of a war against terrorism, initially conceived of in a metaphorical sense, began to be taken increasingly seriously and came to entail waging a real war. Ulrich Beck

I. Introduction
Since the emergence of 9/11 event in U.S.A., the world has witnessed significant increase in terrorist activities. Pakistan unfortunately has been the most vulnerable to the paradigm shift of terrorism. Its vulnerability is mainly subjected to its geographical location. Nonstop terrorist activities toppled over the country's political, social and economic structure. Now the life of a normal citizen is at risk. State of infrastructure has become deplorable owing to the series of terrorist activities. Resultantly economic activity reduced manifold. Being a frontline state on "war on terror" the loss of Pakistan's economy was a natural consequence. Pakistan's economy was affected almost at all economic fronts which comprises of external, industrial, agricultural, business and services sector, etc. The continued rise in the terrorist activities also affected the confidence of foreign investors which caused the stoppage of FDI, besides withdrawal of the portfolio investment. The impact of terrorism was also felt in all the areas of the economy with varying degree and intensity. The most prominent areas included tourism, hotelling, manufacturing, cottage industry, transportation, trade, etc. These industries have reinforcing effect on...

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