Economic effects of terrorism

Terrorism imposes a significant economic effects on societies and will not only lead to direct material damage, but also to long term effects on the local economy. The identification and the estimation of these economic effects of terrorism has received broad attention in economic literature and research, especially since the events around 9/11.

Relevance
Considerable costs are incurred in relation to terrorism. Terrorist events not only leads to material and immaterial costs for those who have become victimised, but also forces local and national authorities to spend billions on the prevention of terrorism and the detection, prosecution and punishment of terrorists. The economic impact of the 9/11 events, for example, are estimated between USD 25 - 60 billion.

Measuring the economic impact of terrorism
Economists use various definitions and terminology for categorising the economic impact of terrorism. The two main categories are the primary and secondary economic impact of terrorism, also referred to as direct and indirect economic effects.

This relationship is illustrated below:

Primary economic impact of terrorism
Primary economic impact of terrorism “refers to the effects arising from the immediate aftermath of a terrorist event”. These effects include the physical destruction of urban objects, and the human casualties (injuries and losses of human life). Primary economic impact of terrorism refers to the effects arising from the immediate aftermath of a terrorist event. These effects include the physical destruction of urban objects, and the human casualties (injuries and losses of human life).

Micro-economic impact
On a micro-economic level, terrorist events influence three main types of economic actors, namely:
 * 1) individual households,
 * 2) the private sector (companies), and
 * 3) the public authorities (see table below).

Due to a terrorist event, these economic agents suffer from impact through losses in physical and human capital, and, at the same time, they themselves may influence the economy through their immediate responses to the violent shock that occurred .In general, the direct economic losses of terrorism do not bulk very large, with an exception for the unprecedented magnitude of the 9/11 attacks. Terrorism in general, and especially in Europe, can, according to Schneider et al. (2010), be characterized as small scale, but frequent events, more focused on objects with a symbolic or political value and not so much on economic symbols like the World Trade Centre in New York.

Secondary economic impact of terrorism
Terrorism will not only cause primary economic impact, but will also produce considerable secondary (or indirect) impact. This secondary economic impact is the result of an interdependent economic system in which terrorist attacks cause the disruption of economic entities which have not been direct targets of the attack. A survey review by the Swiss economists Frey et al. (2004) describes the following indirect economic aspects of terrorist events:

Related subjects

 * Economic
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 * The economic impact of security threats
 * Economic impact of crime
 * Economic impact of security measures
 * Economics of criminal and terrorist behaviour
 * Economic output
 * Economic tools