Authors: Saqib Farid and Abdul RafayFor the first time, we empirically investigate the impact of terrorism on financing extended to SMEs by banks in Pakistan.In this study we use SME financing as proxy of SME development in Pakistan and number of terrorist attacks as proxy of terrorism. Additionally, we also include two controlling variables non performing loans of SME sector and counter terrorism funding in our analysis.Our results confirm the existence of short run and long run causal relationship between terrorism and SME growth. Additionally, the evidence also shows that SME financing shows negative response to terrorist activities in Pakistan.
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