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The Economic Cost of Harboring Terrorism

  • Efraim Benmelech
  • Claude Berrebi
  • Esteban F. Klor

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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File URL: http://www.nber.org/papers/w15465.pdf
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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
Note: LS PE POL
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  1. Arye Hillman, 2007. "Economic and security consequences of supreme values," Public Choice, Springer, vol. 131(3), pages 259-280, June.
  2. 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.
  3. 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.
  4. David A. Jaeger & Esteban F. Klor & Sami H. Miaari & M. Daniele Paserman, 2008. "The Struggle for Palestinian Hearts and Minds: Violence and Public Opinion in the Second Intifada," Working Papers 72, Department of Economics, College of William and Mary.
  5. Eric D. Gould & Esteban F. Klor, 2009. "Does Terrorism Work?," Economics of Security Working Paper Series 12, DIW Berlin, German Institute for Economic Research.
  6. Alberto Abadie, 2006. "Poverty, Political Freedom, and the Roots of Terrorism," American Economic Review, American Economic Association, vol. 96(2), pages 50-56, May.
  7. 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.
  8. 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.
  9. 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.
  10. Benjamin F. Jones & Benjamin A. Olken, 2009. "Hit or Miss? The Effect of Assassinations on Institutions and War," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 55-87, July.
  11. 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.
  12. 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.
  13. repec:cup:cbooks:9780521873161 is not listed on IDEAS
  14. 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.
  15. Claude Berrebi & Esteban F. Klor, 2008. "The Impact of Terrorism on the Defense Industry," Working Papers 597, RAND Corporation Publications Department.
  16. repec:cup:cbooks:9781107004566 is not listed on IDEAS
  17. repec:cup:cbooks:9780521887588 is not listed on IDEAS
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