Walter Enders

Terrorism, Economic Development, and Political Openness: Economic Consequences of Terrorism in Developed and Developing Countries: An Overview

Terrorism is the premeditated use or threat of use of violence by individuals or subnational groups to obtain a political or social objective through the intimidation of a large audience, beyond that of the immediate victim. Although the motives of terrorists may differ, their actions follow a standard pattern, with terrorist incidents assuming a variety of forms: airplane hijackings, kidnappings, assassinations, threats, bombings, and suicide attacks. Terrorist attacks are intended to apply sufficient pressures on a government so that it grants political concessions. If a besieged government views the anticipated costs of future terrorist actions as greater than the costs of conceding to terrorist demands, then the government will grant some accommodation. Thus, a rational terrorist organization can, in principle, achieve some of its goals more quickly if it is able to augment the consequences of its campaign. These consequences can assume many forms, including casualties, destroyed buildings, a heightened anxiety level, and myriad economic costs. Clearly, the attacks on September 11, 2001, (henceforth, 9/11) had significant costs that have been estimated to be in the range of

The Political Economy of Terrorism: The Political Economy of Terrorism

80 to

The Political Economy of Terrorism: Author Index

90 billion when subsequent economic losses in lost wages, workmans compensation, and reduced commerce are included (Kunreuther et al. 2003). The cumulative costs of 9/11 were a small percentage of U.S. gross domestic product (GDP), which exceeded

The Political Economy of Terrorism: The Economic Impact of Terrorism

10 trillion.

The Political Economy of Terrorism: Before and After 9/11

The Political Economy of Terrorism presents a widely accessible approach to the study of terrorism that combines economic methods with political analysis and realities. It applies economic methodology – theoretical and empirical – along with political analysis to the study of domestic and transnational terrorism. In so doing, the book provides both a qualitative and a quantitative investigation of terrorism in a balanced, up-to-date presentation that informs students, policymakers, researchers, and the general reader of the current state of knowledge of the subject. Included in the treatment are historical aspects of the phenomenon, a discussion of watershed events, the rise of modern-day terrorism, examination of current trends, the dilemma of liberal democracies, evaluation of counterrorism, and analysis of hostage incidents. Rational-actor models of terrorist and government behavior and game-theoretic analysis are presented for readers with no prior theoretical training. Where relevant, the authors display graphs using the data set International Terrorism: Attributes of Terrorist Events (ITERATE) and other data sets.

The Political Economy of Terrorism: International Cooperation

The Political Economy of Terrorism presents a widely accessible approach to the study of terrorism that combines economic methods with political analysis and realities. It applies economic methodology – theoretical and empirical – along with political analysis to the study of domestic and transnational terrorism. In so doing, the book provides both a qualitative and a quantitative investigation of terrorism in a balanced, up-to-date presentation that informs students, policymakers, researchers, and the general reader of the current state of knowledge of the subject. Included in the treatment are historical aspects of the phenomenon, a discussion of watershed events, the rise of modern-day terrorism, examination of current trends, the dilemma of liberal democracies, evaluation of counterrorism, and analysis of hostage incidents. Rational-actor models of terrorist and government behavior and game-theoretic analysis are presented for readers with no prior theoretical training. Where relevant, the authors display graphs using the data set International Terrorism: Attributes of Terrorist Events (ITERATE) and other data sets.

The Political Economy of Terrorism: Statistical Studies and the Dynamics of Terrorist Behavior

On 12 October 2000 in Aden, Yemen, a small motorboat full of explosives rammed the USS Cole while it was in port for a refueling stop. Seventeen sailors died and another thirty-nine were injured by the explosion, which ripped a forty-foot by forty-foot hole in the ship’s side. On 13 December 2000 the USS Cole returned to the United States, carried aboard a transport ship, for repairs that lasted fourteen months. Two years later (6 October 2002), Yemeni terrorists attacked the French tanker Limburg while it was readying to receive its cargo of crude oil from an offshore terminal. Although Yemen is ideally located as a major Middle Eastern port because it borders the Red Sea and the Arabian Sea, the combined attacks on the USS Cole and the Limburg crushed Yemen’s shipping industry. A US Department of State (2002) fact sheet indicates that a 300% increase in insurance premiums led to ships routinely bypassing Yemen for competitive facilities in Djibouti and Oman. As a result of a 50% decrease in port activity, Yemen expects to lose

The Political Economy of Terrorism: Terrorism

3.8 million per month as a result of the attacks. The incidents in Yemen illustrate the direct and indirect costs of terrorism. The direct costs can be calculated by summing the replacement costs of damaged goods, equipment, structures, and inventories. Despite the difficulty of measuring the cost of a human life or the cost of pain and suffering, such calculations are now routine, using either lost earnings or the value of a statistical life. The indirect costs, such as the decline in Yemeni shipping revenues, are more difficult to measure. How much of the actual decline is due to insurance costs rather than to the military activities associated with the Iraq War or to higher oil prices is difficult to gauge. Beyond these lost revenues, Yemen faces increased security costs as it decided to purchase additional patrol boats and helicopters to guard its waters. Calculating the associated costs of any attack is difficult, since, unlike traditional crimes, terrorism is designed to create a general and ongoing atmosphere of intimidation and fear. Terrorists are most successful when they lead the public to expect future attacks. Because the psychological effects of the two Yemeni attacks were mutually reinforcing, they increased the “risk premium” necessary to compensate insurers for the potential damage of future attacks.