Economic effects of terrorism - Revision history

Albert at 23:14, 19 January 2018

2018-01-19T23:14:52Z

John P at 15:02, 15 November 2013

2013-11-15T15:02:21Z

John P: /* Secondary economic impact of terrorism */

2013-11-15T15:01:33Z

Secondary economic impact of terrorism

John P at 14:58, 15 November 2013

2013-11-15T14:58:31Z

John P: /* Secondary economic impact of terrorism */

2013-11-15T14:56:26Z

Secondary economic impact of terrorism

John P at 09:28, 30 October 2013

2013-10-30T09:28:59Z

John P: /* Micro-economic impact */

2013-10-30T09:16:33Z

Micro-economic impact

John P: /* Secondary economic impact of terrorism */

2013-10-30T09:15:30Z

Secondary economic impact of terrorism

John P: /* Secondary economic impact of terrorism */

2013-10-30T09:07:24Z

Secondary economic impact of terrorism

John P: /* Secondary economic impact of terrorism */

2013-10-30T09:03:12Z

Secondary economic impact of terrorism

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 * [[Economic impact]]
 **[[Economic impact of urban planning
-**[[belongs to::Economic impact of security threats|The economic impact of security threats]]
+**[[Economic impact of security threats|The economic impact of security threats]]
-***[[is synonymous to::Economic effects of crime|Economic impact of crime]]
+***[[Economic effects of crime|Economic impact of crime]]
 **[[Economic impact of security measures]]
 **[[The economics of criminal and terrorist behaviour|Economics of criminal and terrorist behaviour]]

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 |-
 | National income & growth || The overall effect of terrorism on the economy can only be determined when it is known how an economy would have developed without the terrorist event. Attempts to illustrate these differences by Blomberg ''et al''. (2004)<ref>Blomberg, S. Brock, Gregory Hess and Akila Weerapana (2004): Economic Conditions and Terrorism.
-European Journal of Political Economy 20(2): 463-478. In: Frey, B.S. ''et al''. (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref>, conclude that the effects of terrorism on the economic growth are small and only statistically significant for development countries, and not for the more advanced OECD countries<ref> Negative economic effects are especially present when a small country/region like the Basque country or Israel face a long and intense era with terrorist events. Source: Blomberg ''et al'' (2004) In: Frey ''et al'' (2004).</ref>.
+European Journal of Political Economy 20(2): 463-478. In: Frey, B.S., S. Luechinger, A. Stutzer (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref>, conclude that the effects of terrorism on the economic growth are small and only statistically significant for development countries, and not for the more advanced OECD countries<ref> Negative economic effects are especially present when a small country/region like the Basque country or Israel face a long and intense era with terrorist events. Source: Blomberg ''et al'' (2004) In: Frey, B.S., S. Luechinger, A. Stutzer (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref>.
 |}

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 ===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<ref name=Meierrieks></ref>. A survey review by the Swiss economists Frey ''et al.'' (2004)<ref name=Frey> Frey, B.S. ''et al''. (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref> describes the following indirect economic aspects of terrorist events:
+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<ref name=Meierrieks></ref>. A survey review by the Swiss economists Frey ''et al.'' (2004)<ref name=Frey> Frey, B.S., S. Luechinger, A. Stutzer (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref> describes the following indirect economic aspects of terrorist events:
 {| class="wikitable"

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 ===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 witch terrorist attacks cause the disruption of economic entities which have not been direct targets of the attack<ref name=Meierrieks></ref>. A survey review by the Swiss economists Frey ''et al.'' (2004)<ref name=Frey> Frey, B.S. ''et al''. (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref> describes the following indirect economic aspects of terrorist events:
+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<ref name=Meierrieks></ref>. A survey review by the Swiss economists Frey ''et al.'' (2004)<ref name=Frey> Frey, B.S. ''et al''. (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref> describes the following indirect economic aspects of terrorist events:
 {| class="wikitable"

@@ Line 43: / Line 43: @@
 ===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 witch terrorist attacks cause the disruption of economic entities which have not been direct targets of the attack<ref name=Meierrieks></ref>. A survey review by the Swiss economists Frey ''et al.'' (2004)<ref name=Frey> Frey, B.S. ''et al''. (2004). Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref> describes the following indirect economic aspects of terrorist events:
+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 witch terrorist attacks cause the disruption of economic entities which have not been direct targets of the attack<ref name=Meierrieks></ref>. A survey review by the Swiss economists Frey ''et al.'' (2004)<ref name=Frey> Frey, B.S. ''et al''. (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref> describes the following indirect economic aspects of terrorist events:
 {| class="wikitable"
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 |-
 | National income & growth || The overall effect of terrorism on the economy can only be determined when it is known how an economy would have developed without the terrorist event. Attempts to illustrate these differences by Blomberg ''et al''. (2004)<ref>Blomberg, S. Brock, Gregory Hess and Akila Weerapana (2004): Economic Conditions and Terrorism.
-European Journal of Political Economy 20(2): 463-478. In: Frey, B.S. ''et al''. (2004). Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref>, conclude that the effects of terrorism on the economic growth are small and only statistically significant for development countries, and not for the more advanced OECD countries<ref> Negative economic effects are especially present when a small country/region like the Basque country or Israel face a long and intense era with terrorist events. Source: Blomberg ''et al'' (2004) In: Frey ''et al'' (2004).</ref>.
+European Journal of Political Economy 20(2): 463-478. In: Frey, B.S. ''et al''. (2004): Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref>, conclude that the effects of terrorism on the economic growth are small and only statistically significant for development countries, and not for the more advanced OECD countries<ref> Negative economic effects are especially present when a small country/region like the Basque country or Israel face a long and intense era with terrorist events. Source: Blomberg ''et al'' (2004) In: Frey ''et al'' (2004).</ref>.
 |}

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 == Relevance ==
-Considerable costs are incurred in relation to terrorism. Terrorist events not only leads to material and immaterial costs for those who have become victimized, 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<ref name=Brück>Brück, T., M. Karaisl and F. Schneider (2008): A Survey of the Economics of Security. Economics of Security Working Paper Series.</ref>.
+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<ref name=Brück>Brück, T., M. Karaisl and F. Schneider (2008): A Survey of the Economics of Security. Economics of Security Working Paper Series.</ref>.
 ==Measuring the economic impact of terrorism==
-Economists use various definitions and terminology for categorizing 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<ref>Primary economic impact (or direct effects) are generally defined as the initial, immediate economic output generated by a specific cause (in this case terrorism). Secondary economic impact (or indirect effects) are generated each time a subsequent transaction is made, for example, the impact of terrorism on tourism in the region.</ref>.
+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<ref>Primary economic impact (or direct effects) are generally defined as the initial, immediate economic output generated by a specific cause (in this case terrorism). Secondary economic impact (or indirect effects) are generated each time a subsequent transaction is made, for example, the impact of terrorism on tourism in the region.</ref>.
 This relationship is illustrated below:

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 | There is not much available literature when it comes to the primary costs that households experience due to terrorism itself<ref name=Meierrieks></ref>. Surveys in France, the Republic of Ireland and the UK illustrate that terrorist attacks have a negative effect on reported life satisfaction<ref name="ftn23"> Frey and Luechinger (2005) and Frey et al' (2009). In: Schneider, F., T. Brück and D. Meierrieks (2010): The Economics of Terrorism and Counter-Terrorism: A Survey. P. 36.</ref>. Other empirical research found out that terrorism will produce more fear than other, more probable risks<ref name="ftn24"> E.g. Viscusi, W., K. and R.J. Zeckhauser (2003): Sacrificing Civil Liberties to Reduce Terrorism Risks. Journal of Risk and Uncertainty. No. 27(1), p. 5-76. In: Schneider, F., T. Brück and D. Meierrieks (2010): The Economics of Terrorism and Counter-Terrorism: A Survey. DIW Berlin. Discussion Paper No. 1049, p. 36.</ref>.
  || Businesses and firms, especially the ones operating to or from insecure countries, are frequent victims of terrorist events. According to the German security economists Schneider, Brück and Meierrieks (2010), this is also due to the fact that public buildings are better protected in general. The actual direct losses of terrorism depend on the nature of the attack (property damage or ransom payments for hostages), but overall, Enders and Sandler (2008)<ref name=Enders> Enders, W., T. Sandler (2008): Economic Consequences of Terrorism in Developed and Developing Countries: An Overview. Terrorism, Economic Development, and Political Openness. P. Keefer and N. Loayza, Cambridge University Press: New York: 17-47.</ref> conclude that most sectors recover quickly, given that the economy does not face sustained terrorist attacks, like in Israel and Northern Ireland.
-|| There is not much literature available on this subject. The costs arising from physical destruction from small-scale terrorist events are not structurally measured, except for major events like 9/11 and the terror events in London and Madrid<ref name="ftn26"> Inflicted damage after the Madrid train bombings is estimated to be 5 Million Euro, which is about 2 percent of the total direct economic effects and practically 0 percent of Spain's annual GDP.</ref>. Costs for the public sector arise whenever public infrastructure or buildings are destroyed (including military structures and equipment), but are generally considered to be relatively small<ref name=Meierrieks></ref>. Moreover, terrorism forces local and national authorities to spend billions on the prevention of terrorism and the detection, prosecution and punishment of terrorists.
+|| There is not much literature available on this subject. The costs arising from physical destruction from small-scale terrorist events are not structurally measured, except for major events like 9/11 and the terror events in London and Madrid. Costs for the public sector arise whenever public infrastructure or buildings are destroyed (including military structures and equipment), but are generally considered to be relatively small<ref name=Meierrieks></ref>. Moreover, terrorism forces local and national authorities to spend billions on the prevention of terrorism and the detection, prosecution and punishment of terrorists.
 |}

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 | Foreign trade || Terrorist events not only increase the sense of insecurity and uncertainty for foreign traders, but will also increase transaction costs (due to augmented security measures) and can lead to the destruction of export goods (oil pipes for example)<ref name=Frey></ref>. Nitch and Schumacher (2004) illustrate that countries that are targeted by terrorism, will trade less with each other than countries not affected by terrorism. Moreover, these effects are large: a doubling of the number of terrorist events reduces the bilateral trade flows by 4%<ref name=Frey></ref>.
 |-
-| National income & growth || The overall effect of terrorism on the economy can only be determined when it is known how an economy would have developed without the terrorist event. Attempts to illustrate these differences by Blomberg ''et al''. (2004), conclude that the effects of terrorism on the economic growth are small and only statistically significant for development countries, and not for the more advanced OECD countries<ref> Negative economic effects are especially present when a small country/region like the Basque country or Israel face a long and intense era with terrorist events.</ref>.
+| National income & growth || The overall effect of terrorism on the economy can only be determined when it is known how an economy would have developed without the terrorist event. Attempts to illustrate these differences by Blomberg ''et al''. (2004)<ref>Blomberg, S. Brock, Gregory Hess and Akila Weerapana (2004): Economic Conditions and Terrorism.
+European Journal of Political Economy 20(2): 463-478. In: Frey, B.S. ''et al''. (2004). Calculating Tragedy: Assessing the Costs of Terrorism. Institute for Empirical Research in Economics. University of Zürich. Working Paper Series ISSN: 1424-0459.</ref>, conclude that the effects of terrorism on the economic growth are small and only statistically significant for development countries, and not for the more advanced OECD countries<ref> Negative economic effects are especially present when a small country/region like the Basque country or Israel face a long and intense era with terrorist events. Source: Blomberg ''et al'' (2004) In: Frey ''et al'' (2004).</ref>.
 |}

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 | Savings and consumption || Consumption and saving rates, may be affected by terrorism, but according to Frey ''et al''. (2004), it is still unclear if this effect is positive or negative<ref>According to Frey ''et al.'' (2005) the way saving and consumption is affected by terrorism depends on the local situation: If people are afraid they are going to lose their savings, they will consume more. If they expect a decline in income, on the other hand, they will increase their savings and decrease their consumption</ref>.
 |-
-| Investments || Next to (macro)economic stability, political stability is generally recognized as the most important factors that determine investments in a local economy<ref name="ftn32"> Source: The Worldwide Survey of Foreign Affiliates conducted by UNCTAD and the World Association of Investment Promotion Agencies (WAIPA).</ref>. Not only the amount of investments are influenced by terrorist events, but also the investment composition (in particular the investments in machinery and equipment)<ref name=Frey></ref>.
+| Investments || Next to (macro)economic stability, political stability is generally recognised as the most important factors that determine investments in a local economy<ref name="ftn32"> Source: United Nations & WAIPA (2007): Worldwide Survey of Foreign Affiliate. United Nations Conference on Trade and Development. Occasional Note.</ref>. Not only the amount of investments are influenced by terrorist events, but also the investment composition (in particular the investments in machinery and equipment)<ref name=Frey></ref>.
 |-
 | Stock markets || The impact of terrorist events on financial markets is a famous phenomenon. Since share prices reflect (in theory) expected future gains of a company, a terrorist attack will negatively influence the share prices since: Expected profits will decline if security measures increase the costs of production and trade costs, and consumers will decrease their consumption. The risk premium will increase due to the increased uncertainty about a firm's prospects on the market<ref name=Frey></ref>.On the other hand, share prices already reflect expected terrorist attacks before any actually occurs. So, the conclusion is that only single unexpected events or an unexpected intensification will lead to negative effects.

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 | Effects on tourism || Terrorism systematically influences tourists' choice of destination and can, therefore, substantially negatively affect a host country<ref name=Frey></ref>.The American economists Enders and Sandler (1991)<ref name="ftn30"> Source: Enders, W. and T. Sandler (1995): Terrorism: Theory and Applications</ref>, for example, conclude that a typical terrorist act in Spain scares away over 140,000 tourists. Moreover, the effect is long-lasting and has also an impact on the demand for tourism in neighbouring countries.
 |-
-| Foreign direct investment || Enders and Sandler (1996)<ref name=Enders 96> Source: Enders, W and T. Sandler (1996): Terrorism and Foreign Direct Investment in Spain and Greece.</ref> also found out that countries like Spain and Greece saw their foreign direct investments(FDI) decrease in the period 1975 - 1991 due to a series of terrorist events<ref>This decrease in FDI inflow was worth around USD 0.5 Billion for each country, which can be considered substantial Source: Enders, W and T. Sandler (1996): Terrorism and Foreign Direct Investment in Spain and Greece.</ref>. The impact on FDI in three larger European countries (France, West-Germany and Italy), however, was zero, implying that the impact of structural terrorism on FDI also depends on the size of the economy.
+| Foreign direct investment || Enders and Sandler (1996)<ref>Enders, W and T. Sandler (1996): Terrorism and Foreign Direct Investment in Spain and Greece.</ref> also found out that countries like Spain and Greece saw their foreign direct investments(FDI) decrease in the period 1975 - 1991 due to a series of terrorist events<ref>This decrease in FDI inflow was worth around USD 0.5 Billion for each country, which can be considered substantial. Source: Enders, W and T. Sandler (1996): Terrorism and Foreign Direct Investment in Spain and Greece.</ref>. The impact on FDI in three larger European countries (France, West-Germany and Italy), however, was zero, implying that the impact of structural terrorism on FDI also depends on the size of the economy.
 |-
 | Savings and consumption || Consumption and saving rates, may be affected by terrorism, but according to Frey ''et al''. (2004), it is still unclear if this effect is positive or negative<ref>According to Frey ''et al.'' (2005) the way saving and consumption is affected by terrorism depends on the local situation: If people are afraid they are going to lose their savings, they will consume more. If they expect a decline in income, on the other hand, they will increase their savings and decrease their consumption</ref>.