Total Economic Consequences of Terrorist Attacks: Insights from 9/11

Abstract

Osama bin Laden has emphasized his intent to ruin the U.S. economy. This paper addresses the reason why the September 11 attacks on the World Trade Center fell far short of this goal. It provides estimates of the various types of economic impacts and the factors that affected their relative magnitudes. Special attention is devoted to the resilience of the New York Metro and U.S. economies, how changes in risk perceptions translated into changes in economic behavior, and the impacts of terrorism on economic growth. The analysis is based on a collaborative research effort of eight modeling teams through a research process that included: a common scope and set of basic assumptions and data, and several iterations of comparing and refining simulations and econometric tests. An important conclusion of this paper is that we, rather than the perpetrators, are the major determinant of the consequences of a major terrorist attack. After 9/11, our resilience was high, but so was our fear, both of which had profound effects on the bottom line, though in opposite directions. Government policy in the form of Federal Reserve action and fiscal policy reduced the losses significantly. However, subsequent anti-terrorist initiatives at home and abroad were more costly than the direct damage caused by the attack.