Tuesday, April 3, 2012

Economics of Terrorism

Tavares and Llussa attempt to offer an alternative explanation for the emergence of terrorist cells in the years since September 11, 2001. The authors use economic indicators to evaluate the utility of terrorist attacks.

In order to evaluate the utility of terrorist attacks, the authors examined existing literature pertaining to terrorist attacks and their economic consequences. The analysis considered the impact of terrorism on aggregate output, terrorism and specific sector activities, and terrorism and economic policy.

Impact of Terrorism on Aggregate Output
The authors found that acts of terrorism, while extreme and acute in nature, do not cause long term economic downfalls. The effect of the attacks is much smaller than that of extended conflict or natural disasters. However, high levels of consistent terrorist activity have a longer-lasting economic effect. When looking at the impact of terrorist attacks on aggregate stock prices, researchers found that the impact is short term and suffers from diminishing returns. This is probably because of the diversification of stocks- the attacks cannot affect multiple sectors at the same time.

Terrorism and Specific Sectors of Activity
Although the effect of terrorism is not particularly long term, there is a discernible impact on specific sectors of the economy. Research suggested that the most vulnerable sectors are the airline and tourism industries. The attacks by their very nature target vulnerable sectors and these are two of the most publicized sectors of the economy. The authors contend that the insurance industry would likely be affected, but are unsure whether the impact would be positive or negative.

The paper concludes that the economic costs of terrorism are not as significant as originally believed. The others believe that terrorism garners too much attention in the political realm, and perhaps should take a less public role. However, the authors do not sufficiently examine the trends mentioned in the paper. I believe that further research would develop actionable intelligence concerning exactly where and in which economic environments terrorist groups are most likely to attack.

Tavares, J. and Llussa F. (2007). The Economics of Terrorism: A Synopsis. The Economics of Peace and Security Journal, Vol. 2, No. 1 Retrieved from: http://carecon.org.uk/Chula/2007%20Llussa%20Tavares%20EPSJ.pdf


  1. The short term economic costs can be devastating, as with 9/11, but the real costs come not from the damage, but from the infrastructure put into place afterward to -prevent- a repeat action. How much has it cost to vastly increase airport security in every airport nationwide? Can we attribute those costs to terrorism? Certainly, it's had an effect on our already-strapped-for-cash government.

  2. How did the authors say terrorism impacted economic policy? It's mentioned at the beginning but not covered later on?

  3. I would think economic impact would be less important than something like cultural impact. For instance, with youth turning to al Quida in Afganistan, are they then more likely to not be active participants in society and then therefore economic growth.