MEASURING AND UNDERSTANDING THE IMPACT OF TERRORISM

TERRORISM &
ECONOMIC GROWTH
Many countries which experience high levels of terrorism also
have high levels of internal armed conflict. As a result it is
difficult to separate the effects of terrorism on the economic
performance of these countries from the economic impact of
the conflict. 23
While economic growth and output can be negatively affected
by acts of terrorism, there is not a uniform relationship across
all countries. The literature defining the indirect economic
effects of terrorism shows mixed and often contradictory results.
Further, the effect terrorism has on output is significantly
affected by government type, level of development and location. 24
There is no significant correlation between the GTI and GDP
growth, with an r value of 0.09 over a ten year period. Analysis
of FDI to terrorism shows a similarly weak statistical
relationship with a correlation of r=0.18.
The diverse nature of terrorism, the resilience of an economy
and the level of security are all influential factors which can
determine how costly terrorism is on a country’s economy.
Research shows that the September 11 terrorist attacks had little
effect on US FDI, 25 and that FDI in Spain actually increased by
US$6 billion in 2005 following the 2004 Madrid train
bombings. 26 Conversely, decreased FDI flows were attributed to
terrorism in Greece and Spain in the 1980s and 1990s and were
worth up to US$500 million to each nation. 27 Similarly, the effect
of terrorism on FDI in Nigeria was substantial. It has been
estimated that FDI flows dropped US$6.1 billion in 2010 due to
Boko Haram. 28 This represents a decline of almost 30 per cent
from the previous fiscal year. This is further supported by a
recent study which found that the ten most affected countries
had decreased GDP growth rates of between 0.51 and 0.8 per
cent, while also reducing investment growth by 1.3 to 2 per cent.
Using a similar methodology, IEP has calculated that Iraq has
lost US$159 billion PPP since 2005.
While terrorism does have an impact on economic performance,
it is only visible in countries experiencing a large number of
attacks. Terrorism often occurs in countries with limited
institutional capacity or low levels of development. Under these
circumstances, terrorist events can have a significant effect on
output, investment and growth.
FIGURE 37 IRAQ’S TOTAL ACCUMULATED LOSSES TO GDP FROM TERRORISM, 2005–2014
Terrorism is estimated to have cost Iraq a total of US$159 billion PPP since 2005. This is equivalent
to 32 per cent of the country’s 2014 GDP.
$700
$650
PPP US$ BILLIONS
$600
$550
$500
$450
$400
$350
$300
Projected GDP if no terrorism
Actual GDP
PPP
$159 billion
$250
$200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: IEP Calculations
GLOBAL TERRORISM INDEX 2015 | Economic Costs of Terrorism
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