Terrorism can impose significant costs on an economy. This paper analyses the effect of geography on terrorism. In particular, this paper hypothesizes that a terrorist attack in financial hubs of a country will have significantly higher economic cost than a similar attack in a remote part of the country. This heterogeneity of the geography of terrorism has long been ignored in the literature, and as such is likely to be a significant contribution.

In particular, we focus on the case study of Pakistan and Net Foreign Direct Investment (NFDI). We find that terrorism in financials hubs of Pakistan has imposed a significant cost on NFDI, but similar attacks in remote areas have had insignificant impacts.