The Economic Cost of Harboring Terrorism

The literature on conflict and terrorism has paid little attention to the economic costs of terrorism for the perpetrators. This paper aims to fill that gap by examining the economic costs of committing suicide terror attacks. Using data covering the universe of Palestinian suicide terrorists during the second Palestinian uprising, combined with data from the Palestinian Labor Force Survey, we identify and quantify the impact of a successful attack on unemployment and wages. We find robust evidence that terror attacks have important economic costs. The results suggest that a successful attack causes an increase of 5.3 percent in unemployment, increases the likelihood that the district’s average wages fall in the quarter following an attack by more than 20 percent, and reduces the number of Palestinians working in Israel by 6.7 percent relative to its mean. Importantly, these effects are persistent and last for at least six months after the attack.

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