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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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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. Gould, Eric D & Klor, Esteban F, 2009. "Does Terrorism Work?," CEPR Discussion Papers 7589, C.E.P.R. Discussion Papers.
  2. 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.
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  7. N/A, 2008. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 203(1), pages 8-30, January.
  8. 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.
  9. Arye Hillman, 2007. "Economic and security consequences of supreme values," Public Choice, Springer, vol. 131(3), pages 259-280, June.
  10. Hartog,Joop & Maassen van den Brink,Henriëtte (ed.), 2007. "Human Capital," Cambridge Books, Cambridge University Press, number 9780521873161, june. pag.
  11. Claude Berrebi & Esteban F. Klor, 2008. "The Impact of Terrorism on the Defense Industry," Working Papers 597, RAND Corporation.
  12. 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.
  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. 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.
  15. 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.
  16. B. Peter Rosendorff & Todd Sandler, 2004. "Too Much of a Good Thing?," Journal of Conflict Resolution, Peace Science Society (International), vol. 48(5), pages 657-671, October.
  17. N/A, 2008. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 204(1), pages 9-14, April.
  18. 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.
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