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The Macroeconomic Effects of Terrorism

By Michael Siers

From the Author: This paper was written for EC 397, a seminar in macroeconomics. The topic of terrorism’s impact on the economy fascinated me since it was not a topic I had heard discussed much in the media, or in an academic setting. Terrorism has become an emotionally charged subject, and much has been made of eliminating terrorism at all costs. Conventional economic theory holds that any decision involves examining the differences between the costs and benefits of an action. Counter-terrorism should follow this same logic, and thus an economist would argue that we should see how much protective measures might cost, while seeing what benefits would accrue from enacting these measures. Advocating the idea that some terrorism should exist if it is too costly to prevent it is a fairly poor career move for any politician, but it is certainly a fascinating topic for an academic examination. My paper focused on the various aspects of GDP, and the ways terrorism impacted them as a way to analyze the benefits of preventing terrorism, and a way to quantify some of the emotionally charged discussions on the subject.

From the Faculty Nominator: Michael Siers wrote this paper for my EC397 class, the Senior Seminar in Macroeconomics. In this course, students review the professional literature on a macroeconomic topic of their choosing. Michael wrote about the macroeconomic consequences of terrorism, a subject that has been the focus of a number of empirical studies in the wake of the September 11, 2001 attacks on the United States. Among the questions addressed by these studies is how aggregate economic variables (e.g., the level and the growth rate of Real GDP) are affected by (1) the uncertainty that results from the threat of terrorism and (2) the reallocation of scarce resources to uses associated with combating terrorism. Michael did an excellent job summarizing the results of these studies and integrating them into a comprehensive whole.

Read: The Macroeconomic Effects of Terrorism

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