Measuring the Economic Costs of Terrorism

The paper surveys the various economic costs associated with terrorism. Particularly important is the distinction between the direct and the indirect costs. While many terrorist attacks cause substantial amounts of property damage and create casualties, most of the costs associated with terrorism involve the indirect costs. Although terrorism can reduce a nation’s overall growth rate, the costs of terrorism are concentrated in a few key sectors. In particular, the transportation and tourism sectors, the financial markets, and the amount of foreign direct investment in a country are especially responsive to terrorist attacks. The costs of possible chemical, biological, radiological, and nuclear (CBRN) attacks are difficult to estimate precisely. However, some attack modes are more likely than others. A radiological attack in New York City could have direct costs of roughly the same magnitude as the 9/11 attacks.