Abstract
This article analyzes the effect of terrorism on firms' access to credit. To this effect, we constitute a sample of 29,000 firms from 78 countries, both developed and developing, selected from the World Bank Enterprise Survey (WBES) data. The results obtained from the estimates of a Probit model show that terrorism has a detrimental effect on firms' access to credit. Firms are more constrained in accessing credit when there are terrorist attacks. We explain this result by the fact that terrorist attacks exacerbate uncertainty and psychosis. Furthermore, we show that this negative effect manifests itself in the decline in loan demand from businesses. Our results are robust to different tests. Policy makers could focus on improving the institutional, regulatory, and financial environment in which businesses operate, while addressing security challenges through broader socioeconomic strategies.