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The Economic Cost of Harboring Terrorism

  • Efraim Benmelech

    (Department of Economics, Harvard University, Cambridge, MA, USA,

  • Claude Berrebi

    (RAND Corporation, Santa Monica, CA, USA)

  • Esteban F. Klor

    (Department of Economics, Hebrew University, Jerusalem, Israel)

The literature on conflict and terrorism has paid little attention to the economic costs of terrorism for the perpetrators. This article aims to fill that gap by examining the economic costs of harboring 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, the authors identify and quantify the impact of a successful attack on unemployment and wages. They 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 20.0 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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Article provided by Peace Science Society (International) in its journal Journal of Conflict Resolution.

Volume (Year): 54 (2010)
Issue (Month): 2 (April)
Pages: 331-353

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Handle: RePEc:sae:jocore:v:54:y:2010:i:2:p:331-353
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  1. Jaeger, David A. & Klor, Esteban F. & Miaari, Sami H. & Paserman, M. Daniele, 2012. "The struggle for Palestinian hearts and minds: Violence and public opinion in the Second Intifada," Journal of Public Economics, Elsevier, vol. 96(3), pages 354-368.
  2. Abadie, Alberto, 2004. "Poverty, Political Freedom, and the Roots of Terrorism," Working Paper Series rwp04-043, Harvard University, John F. Kennedy School of Government.
  3. Claude Berrebi & Esteban F. Klor, 2008. "The Impact of Terrorism on the Defense Industry," Working Papers 597, RAND Corporation Publications Department.
  4. repec:tpr:qjecon:v:120:y:2005:i:3:p:835-864 is not listed on IDEAS
  5. Eckstein, Zvi & Tsiddon, Daniel, 2004. "Macroeconomic Consequences of Terror: Theory and the Case of Israel," CEPR Discussion Papers 4427, C.E.P.R. Discussion Papers.
  6. 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.
  7. Jones, Benjamin & Olken, Benjamin, 2007. "Hit or Miss? The Effect of Assassinations on Institutions and War," CEPR Discussion Papers 6298, C.E.P.R. Discussion Papers.
  8. Hartog,Joop & Maassen van den Brink,Henriëtte (ed.), 2007. "Human Capital," Cambridge Books, Cambridge University Press, number 9780521873161, October.
  9. Eric D. Gould & Esteban F. Klor, 2009. "Does Terrorism Work?," Economics of Security Working Paper Series 12, DIW Berlin, German Institute for Economic Research.
  10. Efraim Benmelech & Claude Berrebi & Esteban F. Klor, 2010. "Economic Conditions and the Quality of Suicide Terrorism," NBER Working Papers 16320, National Bureau of Economic Research, Inc.
  11. Eli Berman, 1998. "Sect, Subsidy, and Sacrifice: An Economist's View of Ultra-Orthodox Jews," NBER Working Papers 6715, National Bureau of Economic Research, Inc.
  12. 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.
  13. Arye Hillman, 2007. "Economic and security consequences of supreme values," Public Choice, Springer, vol. 131(3), pages 259-280, June.
  14. 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.
  15. 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.
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