Degree

Master of Science in Economics

Faculty / School

School of Economics and Social Sciences (SESS)

Department

Department of Economics

Date of Submission

2025-11-18

Supervisor

Dr. Faiz ur Rehman, Associate Professor Economics - SESS, Institute of Business Administration (IBA), Karachi

Project Type

MSECO Research Project

Access Type

Restricted Access

Keywords

Consumer Confidence Index, Terrorism, Inflation Expectations, Macroeconomic expectations

JEL Code

D84, E71, H56, O53, C33

Abstract

This study examines the impact of terrorism on consumer confidence and macroeconomic expectations in Pakistan by integrating data from the State Bank of Pakistan’s Consumer Confidence Surveys (CCS) with the Global Terrorism Database (GTD). Using a two-way fixed effects panel model, the analysis explores how terrorism influences both current and expected economic perceptions across 59 strata over multiple survey waves. Consumer sentiment indicators, including the Consumer Confidence Index (CCI), and a newly developed Macroeconomic Optimism Index (MOI), are constructed following the official SBP methodology. Terrorism intensity is measured by the number of attacks and casualties occurring within two months prior to each survey, reflecting the survey’s bi-monthly structure and ensuring temporal relevance. The model controls for both strata and time fixed effects, addressing unobserved heterogeneity and common macroeconomic shocks. Demographic and socioeconomic factors such as average age, gender composition, mean income, and education are included to isolate the independent effect of terrorism on consumer sentiment. Robust standard errors clustered at the stratum level correct for within-stratum serial correlation, ensuring reliable inference. This methodological design enhances the precision of estimates and provides a disaggregated understanding of how terrorism affects regional variations in economic sentiment across Pakistan. Empirical findings reveal that terrorism has a significant and negative associations with consumer confidence, expected financial conditions, and macroeconomic optimism. Frequent terrorist attacks erode confidence, indicating that persistent insecurity amplifies pessimism and weakens economic expectations. Moreover, older individuals tend to display higher levels of pessimism, while higher-income groups exhibit greater optimism. The results underscore that terrorism not only threatens physical security but also undermines psychological stability and economic resilience. The study highlights the importance of restoring security and public confidence as prerequisites for sustainable growth, making a novel contribution to understanding the behavioral and psychological channels through which terrorism influences economic sentiment in a developing country context.

Pages

x, 45

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