We examine the effect of relaxing a binding borrowing constraint for a recipient country on the amount of foreign aid, in a two-country, two-period, trade-theoretic framework. The relaxation unambiguously reduces the flow of foreign aid.

We find that political freedom has a significant and non-linear effect on domestic terrorism, but has no statistically significant effect on transnational terrorism. Geography and fractionalization limit a country's ability to curb terrorism, while strong legal institutions deter terrorism.

This paper shows that de facto financial openness does (does not) increase capital mobility in developing (developed) countries and that capital is (is not) freely mobile in the most financially open developing (developed) countries.