Terrorism and Economy

Terrorism is the systematic use of terror especially as a means of coercion. At present, there is no internationally agreed definition of terrorism. Common definitions of terrorism refer only to those violent acts which are intended to create fear (terror), are perpetrated for an ideological goal (as opposed to a lone attack), and deliberately target or disregard the safety of non-combatants.

Terrorism has occurred throughout history, but today the world is experiencing a global rebirth of attacks. Today it no longer affects only small societies, such as isolated third world countries who fell victim to regular terrorist attacks. The terrorist violence that is on the rise today has informed citizen all over the world about different types of terrorism. Also with the resurgence the world is experiencing of terrorism, the Nation's have been to do what they can to eliminate terrorism. Mainly terrorism has social, psychological and especially economic effects on societies. And we’ll have an eye on the effects of terrorism on international markets, businesses and commerce activities.

Extant research on the effect of trans-national terrorist attacks on international commerce has found evidence within a gravity model framework that terrorism reduces bilateral trade flows. The terrorism creates the overall risk environment for businesses in a country. Furthermore, many terrorist attacks actually involve an attacker from a particular country and a target in another country. The effect of terrorism on trade between countries is directly the effect of a terrorist incident involving an attacker from one country against a target in another, like the recent Mumbai attacks have highly affected the Indo-Pak economic activities. The idea is that such bilateral terrorist attacks more closely reflect the affinity and quality of the relationship between the citizens of the two relevant countries and hence, better represent the actual risk posed to traders in the two countries.

The possibility of an international terrorist activity has suggested to policy makers the need to consider the possibility of border closures to interrupt trade, international business travel, tourism and the loss of immigrant labor. In an era of significant globalization, the costs of such measures are substantial. On the other hand, the duration of a worst-case outbreak could be as long as many years and hundreds of thousands could die. The results must be assessed carefully in light of the uncertainties involved and the fact that this could be an extreme event outside the normal range of the data used to estimate the model. Nevertheless, the estimated costs of border closure and the benefits (the dollar value of lives saved and health expenses minimized) are sufficiently close that closing the border merits serious attention as a mitigation strategy if a pandemic breaks out.

The terrorism also effects in socio economic ways. Now a day’s Governments have to increase their non development expenses to ensure the security and safety of the citizens and for provision of proper environment for business activities. However, conducting benefit-cost analyses of terrorism security efforts is difficult for several reasons including: uncertainty about terrorism threat; lack of data on the effects of security measures on reducing terrorism risks, so due to high cost of precautionary expenses welfare activities are highly reduced.

Terrorist activates also effect the international stock markets. Financial markets’ reactions to these sorts of events are especially relevant, as they reflect the immediate investors’ perceptions about the short and medium term economic impact of the attacks ceteris paribus (as normally no additional information except the one referring to the attacks is considered). Thus financial markets are the first to efficiently take on board and transform the news of a terrorist attack into economic information.

Increasing globalization of economic and social activities worldwide makes catastrophe risks from terrorism more and more global due to interdependencies across sectors and over time. A hallmark of the 21st century is that we have entered a new era of catastrophic risks with pressure for the private and public sectors to react extremely quickly even though they cannot always predict the impact that their actions will have. Thus any large scale terrorist activity can put down the global economy. Managing global risks under conditions of uncertainty, interdependency and competing interests is far from simple. The World Economic Forum (WEF) launched the Global Risks initiative to address some of the issues related to these events under a joint initiative with several large companies and the Wharton Risk Management and Decision Processes Center. Building on the WEF Global Risks 2007 report this paper applies pathways to mitigation by the private and public sectors to the risks of terrorism and natural disasters. These pathways include improving insight, enhancing information flow, refocusing incentives and improving investment.

Finally globalization is a powerful real aspect of the new world system, and it represents one of the most influential forces in determining the future course of the planet. It has manifold dimensions: economic, security, political, and others. Two important aspects of globalization are global business and global terrorism, with the two linked. Global terrorism makes use of global business and global business could play a major role in reducing the dangers of global terrorism. Global business looks at the role of security; the role of planning in creating options for response and resilience; how detection should be integrated into the framework both for "expected" and "unexpected" disruptions against terrorism; the execution of business continuity; and issues of corporate culture beyond planning for bouncing back from disruptions. Global business could have an important role as a major player in the development of new global institutions that would combine public and private interests on a multinational basis to counter global terrorism, challenging the acquisition of various resources by global terrorists.

My Note: Dear friends in my institutes I was given a task to write a note on Terrorism and economy. I presented them the above written article. I remember I compiled this article from different online materials but unfortunately I lost the references (I think manly it was from wikipedia). I have also added a lot from myself. I wonder if someone needs this article so I posted it.