How Does Terrorism Affect The Economy

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Literature Review: A. Terrorism and its Economic Cost: Even though terrorism has existed in countries throughout history, there has not found long-term impact. The reason for that it seems to be less significant and less interesting for scientists but, after 11 September terrorist attacks, it seems to be that it has changed. (Bergersen and Lizardo, 2004). Now, terrorism and its effects have moved to remarkable research topics. After 11 September, terrorist attacks have increasing trend all over the world. Even if it seems that terrorism is one of the main problems of the Middle East, European countries have suffered from terrorism and its painful results. When terrorism being the case, besides the human lives, other economic activities need…show more content…
Besides military expenditures, there are a lot of components that undermines economic growth. Terrorism activities lead to decreases in consumption, export, and investment (Eckstein and Tsiddon, 2004). Eckstein and Tsiddon study on the macroeconomic consequences of terror in Israel. They find that Israel’s GDP would be ten times larger now, if the country were not faced with terrorism between 2001 and 2004. Economic studies also show that terrorist activities can direct and negative effect on foreign direct investment (FDI) (Rasheed and Tahir, 2012). Shahbaz, Javed, Dar and Sattar (2013) study on the relationship between terrorist attacks and FDI in Pakistan. According to their findings, while there is a big increase in growth rate of foreign investment growth in 2000 which have the lowest attacks, there is a there is a big decrease in net foreign direct investment in 2007 which have the highest terrorist attack rate in Pakistan. This reduction is related terrorist activities due to the fact that terrorist activities decrease the foreign investor confidence. Other components that hinder economic growth are tourism, the number of firms and employment. Terrorism activities reduce tourism demand (Arana and Leo´n, 2007; Drakos and Kutan, 2003; Feridun, 2011). Associated with the number of firms and employment, Greenbaum, Dugan, and Lafree (2006) examine the effects of terrorist incidents on business outcomes in Italy. According to the results, the following year after terrorist attacks there is a significant decrease in employment level. Further, the firms which are affected terrorist activities are more likely to open new

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