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Terrorism, Economic Development, and Political Openness

Terrorism, Economic Development, and Political Openness - book cover


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Terrorism and Development book website (Cambridge University Press)

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World Bank Macroeconomics and Growth research website

New book explores how terrorism relates to development

June 20, 2008
Terrorism is as old as war. However, governments of rich western countries began to focus sharply on it only after the 9/11 attacks on New York and Washington DC, and subsequent incidents in Madrid and London in 2004 and 2005.

A new book, Terrorism, Economic Development, and Political Openness, edited by Philip Keefer and Norman Loayza of the World Bank’s Development Research Group examines this age-old phenomenon in today’s context, examining the economic effects of terrorist activity as well as its development roots.

At a Washington launch of the book on June 16, Francis Fukuyama, Professor of International Political Economy and Director of the Johns Hopkins School for Advanced International Studies’ International Development Program remarked that an empirical study of terrorism is especially difficult since the phenomenon is inherently political and driven by complex, diverse motivations in different parts of the world.

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The economic costs of terrorism

The 9/11 attacks on the United States froze financial markets and halted the country’s air travel. Enders and Sandler find that the economic costs of these attacks were large but fleeting, leading to a small drop in national income ($90 billion over a period during which the US economy generated $10 trillion worth of goods and services). Growth dropped briefly but quickly returned to its pre-9/11 path.

However, the researchers also note that the economic effects of terrorism on smaller economies may be much larger, especially where terrorism is endemic. In the Basque Country in Spain, chronic terrorism can drive per capita income 10 percent below where it should have been, as long as the threat of an attack lasts.

Analysis of transnational terrorism data showed that large rich countries are affected transitorily by terrorism, where economic growth suffers for a short time, but recovers,” said Loayza, “however smaller, less diversified countries are likely incur a larger economic cost.

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Poverty may not breed terrorism

The book concludes that there is a lack of clear evidence on whether the poverty of nations is a determinant of terrorism. But what it does find is that individual poverty does not make people more likely to support or participate in terrorist activity.

In a survey of 6,000 Muslims from 14 countries (Fair and Haqqani, 2006), the poorest respondents were the least sympathetic to terrorism. Other evidence shows that individual terrorists are neither poor nor uneducated.

Serving as a discussant at the book launch, Fukayama observed that U.S. foreign assistance increased since the 9/11 attacks. This seemed to have been motivated by assumed linkages between terrorism and poverty, yet that connection was never proven.

Based on those assumptions, you’d expect Africans to have flown planes into buildings, but they didn’t,” said Fukayama.

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But governance and political openness matter

Policymakers in the west, who have asserted that good governance and political responsiveness to citizens are fundamental deterrents of terrorism, are probably right, the authors conclude.

In democracies, it is less easy to persuade well-educated, relatively prosperous individuals to join a terrorist organization. Terrorist organizations tend to emerge in politically closed countries.

Terrorism—which Laitin and Shapiro say is a complex strategy to achieve economic and political goals rather than the direct outcome of irrational behavior—uses ideological commitment to sharpen its organization.

The economic characteristics of a country do determine whether or not it will be a target of terrorist activity. While the origins of terrorist activity seem to be in countries that are politically oppressed, the targets are more often those that enjoy economic success.

The Lexus and the Olive Branch

Economic openness affects development, and, potentially, terrorism. In “The Lexus and the Olive Branch”, Bloomberg and Hess review data based on thousands of terrorist episodes, and find that more trade between pairs of countries reduces the chances of terrorism between them.

Globalization has a dampening effect on both cross-national and domestic terrorism.

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Should counter-terrorism policy support development?

Development expenditures unrelated to military training or engagement in Iraq and Afghanistan increased, at the most, by $4 billion annually in response to the 9/11 attacks. This is as little as 5 percent of the annual increase in expenditure that Treverton and others trace to the US response to terrorism.

This research can’t tell us precisely what the ratio of security and non-security expenditures should be,” said Keefer, “however, the evidence suggests that the intense security and military focus of the response to terrorism could be leavened with greater incremental attention to the development agenda—particularly improving governance and promoting international integration.”

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