Author(s)

PeiCheng Wang, GuoGuo Li, Min Liu^*

Affiliation(s)

Guangdong University of Finance & Economics, Guangzhou 510320, Guangdong, China.

Corresponding Author

Min Liu

ABSTRACT

Background: In today's world of increasing globalisation, foreign direct investment (FDI) plays a crucial role in driving a city's economic development. However, when a city suffers a serious security incident, such as a terrorist attack, the economic impact can be far-reaching. Take the violent terrorist incident in Kunming in 2014 as an example, this incident not only brought great panic and harm to the local people, but also had a non-negligible impact on Kunming's economy.The statistical data shows that the violent terrorist event in Kunming in 2014 led to a dramatic decline in foreign direct investment (FDI) in the city, the mental health and psychological characteristics of foreign investors, such as perceived norms of economic development, may be affected.

Subjects and Methods: In order to explore the causal relationship between FDI decline and the attack, this study collects and collates relevant economic data from more than one hundred prefecture-level cities in central and western China. By analysing the data, we expect to understand the specific impact of terrorist attacks on FDI and the mechanisms of their impacts.This study uses the Synthetic Control Method (SCM) to study whether the 2014 attack caused the decline in FDI in the following two to three years to assess its impact on investors' mental health and psychological profiles.

Results: The results show that the control group of other prefecture-level cities has a good fitting effect on Kunming City through the SCM; the changing trend in FDI in the synthetic control group before 2014 is basically the same as that in the real Kunming City. The three years following 2014 see a huge deviation between the real Kunming FDI curve and the synthetic control group, with the negative impact being most evident in 2016. FDI in Kunming was more prominently affected by the terrorist attacks, demonstrating a prolonged period of fear-related negative emotions and impaired economic cognitive norms, resulting in uncertainty about the psychological needs of investors, increased anxiety, reduced credibility towards the city, and weakened social trust.

Conclusions: This indicates that the attack in 2014 did cause the decline of FDI in Kunming City, and the negative impact had a time lag of about one year. This study further explores the mechanisms by which terrorist attacks lead to a decline in FDI, with the aim of providing ideas for quantifying the economic impact of terrorist attacks, and thus reducing the negative impacts in terms of investors' mental health and psychological profiles.

KEYWORDS

Negative Cognition;Terrorist attack; FDI inflows; Synthetic Control Method (SCM); Mental health

CITE THIS PAPER

PeiCheng Wang, GuoGuo Li, Min Liu. Negative cognition of terrorist attacks and FDI inflows: analysis based on the “3.1” attack in Kunming. Trends in Social Sciences and Humanities Research. 2025, 3(2): 26-36. DOI: https://doi.org/10.61784/tsshr3140.

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