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Terrorism has a massive impact on our economy.  It’s effects are sometimes obvious, and at other times, invisible.  These effects can be seen at many different levels of society.
Every dollar spent, or not spent specifically because of terrorism is an economical effect of terrorism.  Anytime someone buys life insurance, or has their property insured against terrorist attacks out of fear of being a victim, is an economical effect of terrorism.  Every dollar the government puts into terrorism prevention, whether it is in the form of military funding, or security within their own country, is another way that terrorism affects our economy.

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The most obvious, direct and immediate economical effect of terrorism is the damage done to property. While the goal of a terrorist attack may be to take lives, destruction of property usually accompanies the deaths. In explosive terrorist attacks, such as the attacks in Paris in 2015, the goal is to take the lives of many people in crowded areas (in this case, some of the attacks occurred in a crowded football stadium), and the damage to property is relatively insignificant.  However, some terrorist attacks have resulted in billions of dollars of property damage. It is estimated that it took 28.1 billion dollars to repair the damages caused by the world trade center terrorist attacks.  This money was spent cleaning up the debris left from the attack, and repairing the infrastructure and surrounding buildings that were also damaged.  The damages done to the pentagon on the same day cost $500 million to repair.[1]

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The aftermath of the terrorist attacks on September 11th 2001

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Following the initial destruction of a terrorist attack, much of the damages are covered by insurance.  As a matter of fact, 9/11 was one of the most insured events in history.  The destructions of both towers were considered individual insurable events, meaning that the owner collected insurance for both attacks.  The buildings surrounding ground zero of the attacks which were also damaged by falling debris, were insured.  The damages done to the Pentagon were also insured.  This is of course not to mention the life insurance collected on behalf of the thousands of people killed in the attacks.  The insurance payouts related to 9/11 totaled 40 billion dollars.  The survivors of 9/11, as well as the families of those who did not survive also received money, upwards of 7 billion dollars, for their experiences.[1]

Since the occurrence of high profile terrorist attacks, some countries allow terrorism insurance.  This is an obvious result of terrorism, because it is the fear of being the victim of an attack that would lead someone to buy this form of insurance.  The unpredictability of terrorist attacks make it hard for insurance companies to determine insurance premiums.  Major attacks like those on 9/11 have lost insurance companies billions of dollars.  For these reasons, many insurance companies do not cover terrorist attacks at all.[6]

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The September 11th terrorist attacks sparked the "War on Terror".  This war is an example of an indirect effect of terrorism on the economy.  It is estimated that 295-400 billion dollars of US taxpayers' dollars have gone toward supporting veterans and families of deceased veterans of the war on terror, and an additional 32.6 billion has gone toward supporting disabled veterans.  The total estimated cost of the war on terror is 4705.2–5445.4 billion dollars.[1]  Every dollar spent toward the war on terror can be seen as an opportunity cost, as they could have gone toward other things that could have potentially been more beneficial toward the economy of the United States.  This is especially true when you take into account that many people saw the war on terror as a waste of resources.  The wars in Iraq and Afghanistan lasted many years and by the time Barack Obama announced that the US would cease involvement, relatively little progress had been made.  Canada did not take on an active role in the war on terror.

While it has been said that the war on terror was a waste of US resources, It did benefit the US economy in some ways. The production of weapons, vehicles and munitions that were used in the war created jobs, similarly, many US citizens enlisted in the army specifically because of the war on terror. Every new job that came out of the war on terror meant more consumers. It is also argued that the war in Iraq was in fact fought so that the US could gain access to the oil rich regions in the area. Today, many American oil companies are present in Iraq, benefiting from the war.

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Soldiers and military equipment in Iraq

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The New York Stock Exchange did not open on the morning of September 11th 2001. And stayed closed until the 17th. This was done out of the fear that investors would sell their shares out of panic over the attacks. When the market did reopen, many US airlines saw drastic declines in their stock values. American Airlines saw a decline of 39%, and United Airlines saw a decline of 42%. While airlines suffered, firms related to the prevention of terrorism, for example military organizations, saw increased values.[5]

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War-torn countries, areas of civil unrest and anywhere else that may be prone to violence, whether it be riots, or armed conflicts are not considered vacation "hot spots".  Areas that we see today as unsafe for travel were once considered tourist destinations.  Even after the conflict has ended, tourists are still likely to avoid areas that have a bad stigma as a result of their portrayal during the violent time period.  At one point Iraq was considered a stable travel location, and while many people may still travel there today, especially for religious reasons, it clearly is not many people's top choice for a holiday getaway[2]. After the 2015 terrorist attacks in France, a major drop in tourism occurred.  This decrease in tourists resulted in the total economic growth in France dropping by 0.2%.[3]

It is no surprise that being the site of a terrorist attack may deter tourists from visiting.  In the past some terrorist attacks have changed tourism altogether on a global scale.  Considering the nature of the 9/11 attacks, it is no surprise that airlines underwent drastic security enhancements, which cost them an estimated $43 Billion.  But after consumers saw that what seemed like an ordinary air plane trip could turn into history's most memorable act of terrorism, many chose to avoid airlines in their entirety.  In the three days following 9/11, all planes were grounded.  There were no flights, and because of this, the US government paid $5 billion in aid to the affected airlines.  But even after flights started again, US airlines saw a $19.6 billion drop in revenue between 2001 and 2002.[1]

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The effects of terrorism permeate all levels of our society in countless ways.  We can see these effects in tourism, the stock market and in government spending.  However, the nature of terrorism means it affects more than just countries and companies, it effects everyone from the federal level to the personal level.  For this reason many cases of economical effects of terrorism are invisible and incalculable.

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[1] Blakely, Lindsay. “The Cost of 9/11 - in Dollars.” CBS News, CBS Interactive, 8 Sept. 2011, www.cbsnews.com/news/the-cost-of-9-11-in-dollars/.

[2] Drakos, Konstantinos, and Ali M. Kutan. “Regional Effects of Terrorism on Tourism in Three Mediterranean Countries.” Journal of Conflict Resolution, vol. 47, no. 5, 2003, pp. 621–641., doi:10.1177/0022002703258198.

[3] The number of hotel stays increased to 16.4 million in the first half of the year. “Tourists Are Returning to Paris after Attacks.” CNNMoney, Cable News Network, money.cnn.com/2017/08/23/news/economy/paris-france-tourism-bounce-back/index.html.

[4] BAMAT, Joseph. “French Tourism Rebounds Two Years after Start of Terror Attacks.” France 24, France 24, 9 Feb. 2017, www.france24.com/en/20170208-france-tourism-rebounds-two-years-terror-attacks-paris-europe.

[5] Davis, Marc. “How September 11 Affected The U.S. Stock Market.” Investopedia, 11 Sept. 2017, www.investopedia.com/financial-edge/0911/how-september-11-affected-the-u.s.-stock-market.aspx.

[6] “Understanding Terrorism Insurance.” Understanding Terrorism Insurance | III, www.iii.org/article/understanding-terrorism-insurance.