The Effects of the International Monetary Fund on Domestic Terrorism

The past three decades have seen an increase in both domestic terrorist attacks and loans issued by the International Monetary Fund (IMF). In this study, we investigate the connection between IMF loan arrangements and domestic terrorism. We find that countries under IMF loans tend to observe fewer domestic terrorist incidents, especially when the borrowers are democracies. We contend that, while the IMF pressures borrower countries to prevent money laundering and combat the financing of terrorism, this effect is most pronounced in democracies, whose large selectorates incentivize the provision of public goods in a manner that works to reduce domestic terrorism. Our research shows how domestic and international institutions together can possibly help lower incidents of domestic terrorism.