National Security and International Trade

The September 11, 2001 terrorist attack to the twin towers and ensuing heightened national security measures worldwide, but particularly in the United States, are modeled to be equivalent to a thickening of trade barriers in international trade. By estimating a gravity model with a stochastic frontier technique, an effective trade barrier is quantified by “trade inefficiency,†that is by the difference between potential trade and actual trade; this is done both for country pairs and for a given country vis-à-vis all of its trading partners. The impact of higher security levels on trade is examined through hypothetical increases in border thickness, for given values of control variables