Terrorism and Employment: Evidence from Successful and Failed Terror Attacks

Abstract

This paper examines the economic consequences of terror attacks and the channels through which terrorism affects local economies. I rely on an exhaustive list of terror attacks over the period 1970-2013 in the U.S. and exploit the inherent randomness in the success or failure of terror attacks to identify the economic impacts of terrorism. The findings suggest that successful attacks, in comparison to failed attacks, reduce the number of jobs in targeted counties by approximately 4% in the year the attack takes place. The effects fade away after 2 years and I find no evidence that neighboring counties suffer from the successful attack. Analyzing the channels, I find that successful attacks affect particularly specific industries such as retail trade, finance and real estate. Last, I use data from the Michigan Survey of Consumers and show that successful attacks increase consumers' level of pessimism for their personal finances, business conditions, and buying conditions.