Terrorism, Innovation and Venture Capital.

Abstract

This paper examines the relationship between terrorism and innovation and the moderating role of venture capital. Using GMM-IV estimation of panel data from 140 countries covering the period of 2007-2016, we find that terrorism has negative impact on innovation. Interesting results emerge when we separated the developed countries from others. The results show that the impact of terrorism on innovation is lower in developed countries. This is due to the fact that strong institutional settings in developed countries makes the investors confident by providing support and incentives. Better institutional settings in developed countries also helps to reduce uncertainty which maximize innovation and minimize terrorism risk. We also find that venture capital positively moderates the terrorism and innovation relationship. This implies that by providing sufficient fund for technological development, venture capital may help to reduce terrorism risk. These results may guide the policy makers to find a business solution instead of lengthy political solution to mitigate terrorism risk in emerging countries. Overall, this paper will provide the basis for improving the counter-terrorism approaches from innovation perspective.