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TheImpacts of Terrorism on U.S. Economy

Ithas been a long period of discussion considering that terrorismshould not have a huge impact on various economic activities, becauseterrorist outbreaks destroy only a small portion of the stock ofcapital of a country. Many thought that it would not generally affectmost of the economic sectors in the United States. Simply to say,terrorist attacks and other activities can never change and alter theeconomic stability of one’s country, especially in the UnitedStates which is considered as one of the top nations with the mostprogressive economy worldwide. However, according to Abadie andGardeazabal, empirical assessments of the consequences of terrorismusually suggest great major effects on economic outcomes (1). Manypeople cannot consider such a negligible issue towards the economicprogress of one’s country, and the majority must provide solutionsand recommendations so as to prevent further terrorism and economicinstability and its effect worldwide.

Thereis a concept of economics in everything around us. In our salaries,in our basic needs, in our clothes, foods, shelters, etc. everythingelse are in the economic domain. Behind all these ideas, is there aneconomics of terrorism? What can it do to people? Is it possible toprovide the terrorism an impact to our economic stability? Terroristshave perpetrated significant destruction in various places during thepast 30 years for economists to credibly assess how terrorist attacksaffect the economic activities of the country. As for a powerfulcountry such as the United States, the economic cost of terrorismhere is likely to be less than you`d expect (Shapiro).In certain places such as Iran, Iraq, and Israel, terrorist attackshavebeen more occasional and indigenous the economic impact is modest,resembling ordinary crime. However, in the case of the United States,the direct economic impact of terrorism is almost negligible(Shapiro). The immediate costs of terrorist attacks are rarely veryhigh for an economic state, thus, it may contribute less impact for apowerful country such as the United States.

Sayfor an example, the attack on the World Trade Center last 2001 didnot cause any move or actions in the United States asconsumer spending and GDP accelerated sturdily in the quarterimmediately following the attack. United States is really a powerfuland a big country to make it consider as an enemy. Its economic andtechnological progress has provided the country a purpose not to bedeteriorated by various terrorist attacks in different places in U.S.territory. The United States is indeed one of those top city statesthat can fought back equally or even greater to those terroristattacks without sacrificing the economic stability and development ofthe state. As for the case of small countries, like Iran and Israelfor example, terrorism plays a major role in relation to its economicinfluence and economic progress of the city.

Accordingto Vuong, recentterrorist attacks in Kenya and Pakistan last 2013 have reinvigoratedthe worldwide fear of extremist violence. It made a substantialimpact on the way people choose their lives. Terrorism for smallcountries induces fear and violence to its citizens. This naturalhuman response causes subjective principles and certainty to deviatefrom what is real. By discovering the major concerns of terrorism isa challenge for most of the economists, particularly with regard tothe effects on rationality, consumption and economic performance.Moreover, terrorismeffects are greatest on those small nations beset by protractedterrorist campaigns, in which no place seems safe from attack, and onsmall economies that depend on foreign capital.&nbspThestrength of the fear or the level at which it is sustained hinge onthe individual’s capacity to handle fear and violence. Imaginedthreats of violence have other long-term repercussions, such as thecosts of increased measures to national security, or changes inindividual choices such as abstaining from air travel (Vuong).

Terrorism,given its variety of objectives, techniques, targets andorganizational forms, is elusive as far as definitions go. For thediscussion of “terrorism” in this context, the recognition of thetotalitarian rule would have been accountable for millions ofinnocent victims in the deliberate use of state-sponsored terror.According to Llussa and Tavares, terrorism is defined as “thepremeditated use or threat of use of extra-normal violence orbrutality by sub-national groups to obtain a political, religious, orideological objective through intimidation of a huge audience,usually not directly involved with the policymaking that theterrorists seek to influence” (188). Moreover, they also mentionedfour important key elements to define what a real terrorism is:

The“underground” or even informal nature of the perpetrators ofterrorist acts, individuals or organizations the premeditated or“rational” element in the pursuit of objectives the crucial roleof violence, often of an extreme nature finally and certainly notleast, its intended impact on a broad audience beyond the directtargets. (Llussa amd Tavares)

Terrorismengenders emotional and mental distress to people, which in turnexaggerates subjective beliefs on the marginal impact of consuming agood on the possibility of persistence. People respond to fear bydropping the consumption of the terror-affected good which usuallycomes at a utility cost, or by taking costly activities to controlfear by actively changing their discernment of the danger ofconsuming such a good (Vuong).&nbspTheeconomy itself is composed of people who make the entire economy. Weare all part of the economy and we share equal opportunities tocontribute to the progress of the state’s economy. Thus, each of usis important in building the nation’s economic growth. As for astrong nation like the United States, economistsexpect the immediate impact to be relatively small and fleeting,and probable the greatest disaster of terrorist attacks in the U.S.history may be traced back from the 9/11 attack on the World TradeCenter, estimating the total insuredlosses at around $32 billion for business interruption, workerscompensation, loss of life and other liabilities (Wolk). Moreover,Wolk also mentioned that terrorism has a long-term negative effect onthe economic progress state, similar to other kinds of politicalinstability.

Furthermore,Wolk made an argument from the idea that the United States’economic growth was not greatly affected by the terrorist attacks. Hementioned the oil price as an example to validate his thoughts, inwhich the U.S. economy is being pushed up by a risk premium stemmingin part from terrorist attacks that are frightening the Saudi regimeand averting expected oil flows from Iraq. Thus, each of us cannot bedetermined what the real impact of terrorism is to the state itselfas well as for every citizen who contribute for the state’seconomy.

Inan integrated world economy like the United States, where variousinternational investors are able to diversify other country risks,terrorism may persuade large movements of capital across the nations.The empirical evidence, based on cross-country regressions, indicatesthat terrorist risk depresses net foreign investment positions. Thisrelationship is “robust to the overview of demographic features,country-specific risk indexes, governance indicators, and otherfinancial and macroeconomic factors such as per capita GDP and FDIrestrictions which might determine the country’s FDI position”(Abadie and Gardeazabal, 21). ementioned fff


Abadie,Alberto and Javier Gardeazabal. “Terrorism and the world economy.”EuropeanEconomic Review. 52.(2008).1-27. Web. 16April 2014. Retrieved fromhttp://www.hks.harvard.edu/fs/aabadie/twep.pdf

Llussa,Fernanda and Jose Tavares. “Economics and Terrorism: What We Know,What We Should Know and the Data We Need.” Proceedingsof the 10th Annual International Conference on Economics andSecurity. 187-248.Web.16 April 2014. Retrieved fromhttp://www.city.academic.gr/special/events/economics_and_security09/2006/8-Tavares.pdf

Shapiro,Roberto. “Al-Qaida and the GDP: How much would terrorism damage theU.S. economy? Less than you`d expect.”Slate.Web.16 April 2014. Retrieved fromhttp://www.slate.com/articles/business/the_dismal_science/2003/02/alqaida_and_the_gdp.html

Vuong,Emily. “Terrorism, fear and the impacts on economic rationality”.Essa.Web. 16 April 2014. Retrieved fromhttp://economicstudents.com/2013/10/terrorism-fear-and-the-impacts-on-economic-rationality/Wolk,Martin. “Economic impact of terror may be lasting.” NBCNews.Web. 16 April 2014. Retrieved fromhttp://www.nbcnews.com/id/8514278/ns/business-eye_on_the_economy/t/economic-impact-terror-may-be-lasting/#.U03fhFWSyN0