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The Impact of Terrorism on the Economy

Dian van Rooi
Dian van Rooi currently is a MSc Economics student, interested in financial markets and institutions, and socio-economic policy.

We all know the world is pretty unstable at the moment. Some examples are the terrorist attacks in Manchester, London, Paris, Nice, Indonesia, Egypt etc. The social effects are incredibly large, but you also might wonder what the impact is on the economy.

A direct impact of economic destruction is almost inevitable. Firstly, budget is allocated to a war or an attack which could have been spent more productively. Secondly, the attack probably destroys some economic resources, such as buildings, and roads. You can imagine that during the attack on the WTC in september 2001, destroy a great amount of both capital and labor. Lastly, the tourism industry is directly affected by an attack in a specific place. In 2015, the total global economic impact of terrorism reached $89.6bn.

Furthermore, war and attacks can create uncertainty in markets. Where the next attack will be is unknown, and international cooperation will happen less, meaning a decrease in stock markets and less foreign direct investments. Another indirect effect is that citizens and government more often choose for a secure option instead of a more productive option. Lastly, linked with the refugee crisis, war brings along increased nationalism and skepticism towards foreigners. This may be the reason Trump came into power and the Brexit is taking place. The refugee crisis brings costs of its own too of course, these people would have been far more productive in their home country, but due to war they cannot stay there. Inge wrote about the link between climate change and the refugee crisis. Which would mean that there are incalculable more costs involved with the instability of a region because of terrorism.

Although it does not look promising in the near future, hopefully these attacks will never happen again. For the sake of the society and economy.

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