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The Economic Cost of Harboring Terrorism

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  • Efraim Benmelech
  • Claude Berrebi
  • Esteban F. Klor

Abstract

The literature on conflict and terrorism has paid little attention to the economic costs of terrorism for the perpetrators. This paper aims to fill that gap by examining the economic costs of committing suicide terror attacks. Using data covering the universe of Palestinian suicide terrorists during the second Palestinian uprising, combined with data from the Palestinian Labor Force Survey, we identify and quantify the impact of a successful attack on unemployment and wages. We find robust evidence that terror attacks have important economic costs. The results suggest that a successful attack causes an increase of 5.3 percent in unemployment, increases the likelihood that the district’s average wages fall in the quarter following an attack by more than 20 percent, and reduces the number of Palestinians working in Israel by 6.7 percent relative to its mean. Importantly, these effects are persistent and last for at least six months after the attack.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15465.

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Date of creation: Oct 2009
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Publication status: published as Efraim Benmelech & Claude Berrebi & Esteban F. Klor, 2010. "The Economic Cost of Harboring Terrorism," Journal of Conflict Resolution, Peace Science Society (International), vol. 54(2), pages 331-353, April.
Handle: RePEc:nbr:nberwo:15465

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References

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  1. Claude Berrebi & Esteban F. Klor, 2010. "The Impact of Terrorism on the Defence Industry," Economica, London School of Economics and Political Science, vol. 77(307), pages 518-543, 07.
  2. Khusrav Gaibulloev & Todd Sandler, 2009. "The Impact Of Terrorism And Conflicts On Growth In Asia," Economics and Politics, Wiley Blackwell, vol. 21(3), pages 359-383, November.
  3. Alberto Abadie, 2006. "Poverty, Political Freedom, and the Roots of Terrorism," American Economic Review, American Economic Association, vol. 96(2), pages 50-56, May.
  4. David A. Jaeger & Esteban Klor & Sami Miaari & Daniele Paserman, 2008. "The Struggle for Palestinian Hearts and Minds: Violence and Public Opinion in the Second Intifada," HiCN Working Papers 52, Households in Conflict Network.
  5. Benmelech, Efraim & Berrebi, Claude & Klor, Esteban F., 2010. "Economic Conditions and the Quality of Suicide Terrorism," CEPR Discussion Papers 7995, C.E.P.R. Discussion Papers.
  6. Eric D. Gould & Esteban F. Klor, 2009. "Does Terrorism Work?," Economics of Security Working Paper Series 12, DIW Berlin, German Institute for Economic Research.
  7. Efraim Benmelech & Claude Berrebi, 2007. "Human Capital and the Productivity of Suicide Bombers," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 223-238, Summer.
  8. Abadie, Alberto & Gardeazabal, Javier, 2005. "Terrorism and the World Economy," DFAEII Working Papers 2005-19, University of the Basque Country - Department of Foundations of Economic Analysis II.
  9. Eckstein, Zvi & Tsiddon, Daniel, 2004. "Macroeconomic consequences of terror: theory and the case of Israel," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 971-1002, July.
  10. Eli Berman, 2000. "Sect, Subsidy, And Sacrifice: An Economist'S View Of Ultra-Orthodox Jews," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 905-953, August.
  11. Keefer,Philip & Loayza,Norman (ed.), 2008. "Terrorism, Economic Development, and Political Openness," Cambridge Books, Cambridge University Press, number 9780521887588, October.
  12. Arye Hillman, 2007. "Economic and security consequences of supreme values," Public Choice, Springer, vol. 131(3), pages 259-280, June.
  13. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
  14. Hartog,Joop & Maassen van den Brink,Henriëtte (ed.), 2007. "Human Capital," Cambridge Books, Cambridge University Press, number 9780521873161, October.
  15. Benjamin F. Jones & Benjamin A. Olken, 2005. "Do Leaders Matter? National Leadership and Growth Since World War II," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 835-864, August.
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Citations

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Cited by:
  1. Etkes, Haggay, 2011. "The impact of employment in Israel on the Palestinian labor force (2005–08)," MPRA Paper 34681, University Library of Munich, Germany.
  2. Claude Berrebi & Esteban F. Klor, 2012. "Do Poor Economic Conditions Affect Terrorism?," EUSECON Policy Briefing 15, DIW Berlin, German Institute for Economic Research.
  3. Claude Berrebi & Esteban F. Klor, 2011. "Does Harboring Terrorists Have Economic Costs?," EUSECON Policy Briefing 12, DIW Berlin, German Institute for Economic Research.
  4. Massimiliano Cali & Sami Miaari, 2013. "The labour market impact of mobility restrictions: Evidence from the West Bank," ERSA conference papers ersa13p99, European Regional Science Association.
  5. Etkes Haggay, 2012. "The Impact of Employment in Israel on the Palestinian Labor Force," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 18(2), pages 1-36, August.
  6. Benmelech, Efraim & Berrebi, Claude & Klor, Esteban F., 2010. "Economic Conditions and the Quality of Suicide Terrorism," CEPR Discussion Papers 7995, C.E.P.R. Discussion Papers.
  7. Efraim Benmelech & Claude Berrebi & Esteban Klor, 2010. "Counter-Suicide-Terrorism: Evidence from House Demolitions," NBER Working Papers 16493, National Bureau of Economic Research, Inc.
  8. Caruso Raul & Klor Esteban F., 2012. "Political Economy Studies on the Israeli-Palestinian Conflict: Introduction," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 18(2), pages 1-10, August.
  9. M. Daniele Paserman & Esteban F. Klor & Sami H. Miaari, 2011. "Can Militants Use Violence to Win Public Support? Evidence from the Second Intifada," Boston University - Department of Economics - Working Papers Series WP2011-046, Boston University - Department of Economics.

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