Effect of domestic terrorism on the US Economy

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Recent strings of incidences over the past years serve as an indication that despite the over decades long focus of the government on the jihadists’ threats, domestic terrorism is still a pertinent issue in the United States. Many cases are reported of people opening fire on schools children, religious worshiping places, on police and/ directing violent acts on particular religious or ethnic groups.

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These violent acts of terrorism are said to stem from different ideological streams such as the white supremacy movements, the comitatus or sovereign citizen movements, and /or violent extremists that are home grown such as Syed Rizwan Farook and Tashfeen Malike who together killed 14 people in San Bernardino in California in late 2015. FBI investigations in the latter concluded led to the conclusion that the couple was home grown extremists who drew inspiration from a foreign based terrorist group. This is after Malik was found to have pledged his allegiance to the leader of IS Abu Bakr al Baghdadi on Facebook. This shooting incident necessitated more introspection over the tasks of the agencies of the US government had been tasked with working effectively in order to alleviate the radicalization of the citizens of the US.

Other instances of domestic terrorism include the Timothy McVeigh’s bombing of the Alfred P. Murray Federal Building in Oklahoma on 19th April, 1995; Centennial Olympic Park, Atlanta bombing by Eric Robert Rudolph on 27th July, 1996; as well as the package bombing campaigns that spanned 1978-1985 in the US and conducted by Unabomber (Peter Bergen, 2016).

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Whenever these horrific acts of domestic terrorism occur they lead to massive shock and feelings of disbelief over the possibility of such horrific acts happening in the US, given its stance and actions on terrorism and its commitment to promoting global peace and security. Domestically, the country can be seen to be struggling in its efforts to establish effective ways for countering violent extremists as well as counteracting the presence and influence of terrorists on social media platforms. However, a troubling statistic is that all the lethal terrorist attacks in the past decade in the US has been and a half has been conducted by a citizen of the country, or permanently residing legal residents either singularly or in pairs and small groups, and who have no connections to acclaimed terrorists organizations such as al Qaeda or ISIS. This is demonstrated by the Boston marathon bombings that were carried out by the Tsarnaev brothers in 2013, and the Fort Hood, Texas killing of 13 people by US army major Nidal Hassan in 2009.

Terrorism poses as major threat to both the US and the entire global economic system. Terrorism can be defined as the premeditated usage of and/ or the threat to use violence by individual or groups in order to advance their ideological or political perspective by intimidating the great majority beyond the immediate victims of their actions (Enders & Sandler, 2012). Terrorism manifests in two forms; transnational terrorism and domestic terrorism. Domestic terrorism is homegrown with its effects primarily falling on the host country, its institutions, property, citizens as well as policies. The terrorists or perpetrators are usually citizens of the same country that they taunt.

On the other hand, transnational terrorism involves two or more countries where the nationality of one or more victims differs from that of the perpetrators.  These include kidnappings and bombing of hostages of other countries as can be seen in the actions of the Islamic State in Iraq and Syria (ISIS). Domestic terrorism cases outnumber the transnational cases. Despite lacking the same magnitude as the transnational activities in most occasions, they generally have the same economic impact but on a smaller scale (Enders & Sandler, 2012). Terrorist acts have the impact of reducing investments in the nations that that are affected. It also has an impact on employment and the formation of capital. Terrorists tend to target tourism, transportation or outcomes of foreign direct investment (FDI) in order to get international attention (Keefer & Loayza, 2012).

Costs of Terrorism

Terrorism could affect trade in various ways through the anxiety that it creates. These include: its potential to create uncertainty that could result in increased cost of goods relative to identical goods that are produced in countries that are free of terrorism. Terrorism acts lead to increased costs of doing business. This anxiety can be attributed to the influence that are terrorism prone areas have on increasing insurance premiums and costs on security that potentially increase the competitiveness of goods (Bandyopadhyay, Sandler & Younas, 2016).

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The flow of goods and other resources is also gets slowed down by terrorism an entry points the individual states and the country in general owing to extended searches and inspection and other safeguarding measures. Government expenditures are also diverted by from more productive courses on public expenditure to less productive security investments because of terrorism (Keefer & Loayza, 2012).

Terrorism has direct costs such as the cumulative value of tangibles damaged, for instance factories, housing, equipment, merchandise and other structures in general. Terrorism acts also disrupt economic activities and this could result in disrupted and low wages, loss of incomes among other aspects. Human emotions of grief are difficult to measure, but such loses attributed to terrorism can be identified as the loss family and friends, who could be the sole bread winner of their families. This might not adequately factor in the psychological trauma that is experienced by the families of the victim (Kollias, Papadamou & Stagiannis, 2011).

Psychological trauma affects effective functioning and thereby reduces the productivity of those affected. This could lead to incapability to efficiently perform work duties hence job loss, while companies will be faced with poor performance hence low profitability that affects the viability of their operations. Acts of terrorism also affect the efforts of economic and political planning, thereby having an impact on the future economic deliberations and trend especially if the terrorist attacks have certain trend or pattern (Gaibulloev, Sandler & Santifort, 2011).

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It is also indicated in empirical literature that a nation’s ability to weather terrorist attacks depends on the nature of its economic and political system rather than on the nature of the attacks (Enders & Sandler, 2012). Domestic terrorist attacks are found to be more traumatic owing to the idea that the terrorist activities are conducted by individuals who are known in the immediate community. Therefore, the sustainability anti-terrorism campaigns, their magnitude, openness and market orientated approach on the economy play a vital role.

Domestic trade however can be seen to exhibit less clear cut asymmetry in the effects that both domestic and transnational terrorism have on trade. These dominate findings in several empirical findings. Domestic terrorism has fewer negative influences on bilateral trade compared to transnational terrorist. This can be attributed to the fact that domestic terrorism affects bilateral trade through a single channel while transnational terrorism has a negative impact that stretches through several channels

Considering the size of the US economy, the occasional domestic terrorism fail to register significant destructive terror to the economy since the market finds a way to promptly shift capital and employment to other sectors that can be productively utilize them (Bandyopadhyay, Sandler & Younas, 2016). Domestic terrorism would only affect a small portion of the GDP, and are always limited to a very small region. Such local shock have a very minimal potential to influence the entire economy despite their impact on immediate victims, but instead, more significant turbulences can be caused by terrorism attacks that hit the entire, or a great proportion of the US market since it would the effect of undermining the peoples’ market expectations.

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Domestic terrorism, due to its low magnitude in a vast economy like the US, can rightfully be considered as urban crime. Economists in the US demonstrate the effects of crime as reducing investments and growth by 0.05% per year, which is a negligible rate in the respective states or the entire nation since their impact is not felt everywhere. Like violent crime, domestic terrorism can be viewed as a localized phenomenon that is often concentrated in urban areas that feature low incomes. Owing to this the results off the localized crime is consistent with domestic terrorism in influencing fleeing investments, slumping economic growth and development  and the creation of employment to other regions that are deemed to be safer (Gaibulloev, Sandler & Santifort, 2011).


Review on various literature is consistent with the idea that transnational terrorism incidences have a greater detrimental impact on the economy relative to the incidences of domestic terrorism that are usually more localized and on a relatively smaller scale. This is reflected on the impact on costs of transportation, fixed costs, and the general costs of doing business which are affected impact is directly proportional to the scale or magnitude of the terrorist attacks, as well as their frequency. Domestic terrorism also have a less marginal impact on losses with regard to income (Gaibulloev and Sandler 2008), which implies reduced demand for imports.

Domestic terrorism has a less detrimental impact attributed to impact on reducing primary goods trade rather than reducing manufactured goods trade.  Furthermore, both domestic and transnational terrorism have a greater impact on trade that features industries that are both medium skilled and highly skilled; being consistent with the inference that terrorists tend to focus in attacking such industries located in urban areas which might be less capable of recovering from such terrorist attacks relative to sectors that are skill intensive.

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The extent of the detrimental effects of terrorist attacks will depend on their nature as either transnational or domestic. For the purpose of this paper, the impact of domestic terrorism on the US economy is marginal. This is because they are localized on a small area, have a lesser magnitude in terms of destruction, causalities and disruption of trading activities. Despite this, they still have an impact in terms of their effect on the immediate victims such as injury of loss of family members and friends that could have psychological effects on the working populace hence reducing their productivity and/ or consequently cause job loss. Business premises can be destroyed leading to loss of employment, reduced incomes and reduced opportunities for employment owing to the increased cost of business in the affected areas (Kollias, Papadamou & Stagiannis, 2011).

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  1. Bandyopadhyay, S., Sandler, T., & Younas, J. (2016). Trade and Terrorism: A Disaggregated Approach. Federal Reserve Bank of St. Louis, Working Paperse, 2016(001). http://dx.doi.org/10.20955/wp.2016.001
  2. Enders, W., & Sandler, T. (2012). The political economy of terrorism. New York, N.Y. [u.a.]: Cambridge Univ. Press.
  3. Gaibulloev, K., Sandler, T., & Santifort, C. (2011). Assessing the Evolving Threat of Terrorism. Global Policy, 3(2), 135-144. http://dx.doi.org/10.1111/j.1758-5899.2011.00142.x
  4. Keefer, P., & Loayza, N. (2012). Terrorism, economic development, and political openness. Cambridge: Cambridge University Press.
  5. Kollias, C., Papadamou, S., & Stagiannis, A. (2011). Terrorism and capital markets: The effects of the Madrid and London bomb attacks. International Review of Economics & Finance, 20(4), 532-541. http://dx.doi.org/10.1016/j.iref.2010.09.004
  6. Peter Bergen, C. (2016). The real terror threat in America is homegrown. CNN. Retrieved 25 July 2017, from http://edition.cnn.com/2016/06/12/opinions/orlando-homegrown-terror-bergen/index.html
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