The economics of terrorism is a branch of economics dedicated to the study of terrorism. It involves using the tools of economic analysis to analyse issues related to terrorism, such as the link between education, poverty and terrorism, the effect of macroeconomic conditions on the frequency and quality of terrorism, the economic costs of terrorism, and the economics of counter-terrorism. The field also extends to the political economy of terrorism, which seeks to answer questions on the effect of terrorism on voter preferences and party politics.
Research has extensively examined the relationship between economics and terrorism, but both scholars and policy makers have often struggled to reach a consensus on the role that economics plays in causing terrorism, and how exactly economic considerations could prove useful in understanding and combatting terrorism.
Introduction
The study of terrorism economics dates back to a 1978 study by William Landes, who conducted research into what acted as effective deterrents for airplane hijackings. Looking at aircraft hijacking trends in the US between 1961 and 1976, Landes found that the reduction in the number of hijackings after 1972 was associated with the introduction of mandatory screening systems, the increased chance of apprehension and harsher criminal penalties. He forecasted that if mandatory screening was not in place, and if the probability of apprehension remained equal to its 1972 value, there would have been between 41 and 67 additional hijacking between 1973 and 1976.
Since the attack on the World Trade Center, there have been many more empirical and theoretical contributions that have helped to expand the field. Notably, Alan Krueger and Jitka Maleckova published a paper in 2003 that demonstrated little relationship between poverty and terrorism, in contrast to the common wisdom following 9/11.
Definition of terrorism
Scholars and politicians alike have struggled to agree on a universal definition of terrorism. Terrorism expert Jessica Stern asserts that "the student of terrorism is confronted with hundreds of definitions in the literature." However, over this period, scholars dedicated to the study of the economics of terrorism have converged to a standard definition that is frequently used for economic research. It is based on the definition employed by the US State Department, and is primarily used because it uses concrete language, and avoids phrases that create ambiguity in classification, like "often" and "especially."
Poverty, education and terrorism
Poverty as cause of terrorism
For many years, the common wisdom was that poverty and ignorance (i.e. lack of education) was the root cause of terrorist activity. This opinion was once held by politicians across both sides of the aisle in the United States and leading international officials, including George W. Bush, Bill Clinton, Tony Blair, Shimon Peres, James Wolfensohn, Elie Wiesel, and terrorism expert Jessica Stern.
Origins of poverty theory
Alan Krueger has argued that the origins of this common wisdom are an inaccurate early empirical study by Arthur Raper. Using early empirical analysis, Raper researched the link between the number of lynchings in the south of the United States and the price of cotton, which he used as a proxy for economic conditions. He found a strong negative correlation between the price of cotton and the number of lynchings, and concluded that as economic conditions improve, people commit fewer hate crimes. In 1940, Yale psychologists Carl Holland and Robert Sears cited Raper in a crime economics paper that argued people are more likely to commit violence against others when they are poor. Krueger has alleged that these studies were the beginning of the literature on hate crimes, and the origin of the common wisdom that there is a positive correlation between poverty and terrorism.
However, subsequent research has rejected Raper's findings. In 2001, Green, McFalls and Smith published a paper that debunked Raper's conclusion regarding the relationship between economic conditions and hate crimes. By extending Raper's data-set beyond 1929 and running a multiple regression with controls, they found that Raper had merely identified a correlation between the two variables in the time period of his analysis, and that there was actually no meaningful relationship at all between the price of cotton and the number of lynchings.
Other studies have also refuted the link between economic conditions and hate crimes. In 1998, Green, Glaser and Rich published a study on the relationship between citywide unemployment and homophobic, racist, and anti-semitic hate-crimes, and found no significant correlation. Swarthmore economists Fred Pryor and Philip Jefferson found similar results in their study on the link between the existence of hate groups and both local unemployment rates and the disparity in earnings between blacks and whites. In accordance with the surrounding literature on the topic, they found no correlation with either.
Advanced empirical analysis
After noticing that the terrorists involved in 9/11 were well-educated and wealthy, and noting a lack of evidence for the common claims regarding the relationship between economic conditions and terrorism, many economists decided to conduct research on the economics of terrorism.
In 2003, Alan Krueger published a seminal paper that debunked the common wisdom that terrorists are uneducated and poor.Krueger, Alan; Maleckova, Jitka (2003). "Education, Poverty and Terrorism: Is There a Causal Connection". Journal of Economic Perspectives. 17. By looking at a data-set of Hezbollah militants who died in action from 1982 to 1994 and a fair comparison group from the Lebanese population, he found that Hezbollah militants were better educated than their peers in the population, and less likely to come from poverty. In the same paper, Krueger cited Claude Berrebi's analysis of Hamas, PIJ and PNA terrorist attacks in Israel and the occupied Palestinian territories between 1987 and 2002. Berrebi, in accordance with Krueger's own research, found that Palestinian terrorists and even suicide bombers were both more likely to have attended college than the average Palestinian, and less likely to come from a poverty stricken background. In fact, 2 of the suicide bombers in Berrebi's data-set were actually the sons of millionaires. From his own and Berrebi's analysis, Krueger concluded that there is little reason to the argument that a reduction in poverty or increase in educational attainment would meaningfully reduce international terrorism.
In 2007, Claude Berrebi published a paper looking at the link between education and terrorism among Palestinian suicide bombers, which used an updated data-set that included failed and foiled attacks between 2000 and 2006. His conclusions reaffirmed Krueger's findings: both higher education and a higher standard of living were found to be positively associated with participation in Hamas or PIJ and with becoming a suicide bomber, whilst being married reduced the probability of involvement in terrorist activities. Berrebi also did much to develop the profile of a terrorist from Israel and the occupied Palestinian territories, finding that at least 96% of terrorists in his data-set had at least a high-school education, and that 93% were under the age of 34.
Krueger also investigated the theory that, whilst terrorists may be better educated and wealthier than the population, poor macroeconomic conditions for the country as a whole might drive wealthier citizens to commit acts of terrorism. Contrary to this theory, he found that when one accounts for the fact that poorer countries are less likely to have basic civil liberties, there is no difference between the number of terrorists springing from the poorest or the richest countries.
Although studies have demonstrated a positive relationship between income, education and the propensity to be a terrorist, scholars are divided on whether this means that these factors cause someone to engage in terrorist activity. In 2005, Ethan Bueno de Mesquita developed a theoretical model in which he argued that terrorist organisations would choose the most well-educated and experienced volunteers since they would be the most effective terrorists. This theory was supported by a 2007 study, in which Berrebi found that terrorists who are older, wealthier, and better educated are more likely to produce a successful, and deadlier, terrorist attack. Whether the positive relationship between terrorism and income/education is a result of the demand-side of terrorism is uncertain, however, the rise of lone wolf attacks might give way to an opportunity for terrorism research in which the sample of terrorists will not have been filtered by terrorist organisations first.
Macroeconomic conditions and the frequency of terrorism
Alongside the array of literature that examines the link between individual poverty and the propensity to become a terrorist, there is also research dedicated to the effect of macroeconomic conditions on the occurrence of terrorism. A paper published by Bloomberg, Hess and Weerapana in 2004 examined exactly this using a panel data set of 127 countries from 1968-1991. They concluded that for democratic and high income countries, economic contractions increase the probability of terrorist activity.S.Brock Blomberg, Gregory Hess, Akila Weerapana, Economic conditions and terrorism, European Journal of Political Economy, Volume 20, Issue 2, June 2004, Pages 463-478
However, this study has been critiqued for not separating the terrorist venue country from the terrorist target country in its analysis. In a working paper from 2003, Claude Berrebi addressed this, noting that terrorist attacks would be more likely to be caused by the economic conditions where the perpetrators come from, than where the attack actually takes place. Taking this into account, he found that there was no sustainable link between economic conditions in Gaza and the West Bank, and the frequency of terrorism produced by terrorists from these regions. These findings were supported by Alberto Abadie, who also failed to find a significant association between terrorism and macroeconomic variables once control variables were accounted for. Abadie argued that political freedom has a far stronger, and monotonic, relationship with terrorism, with terrorism peaking in countries that transition from authoritarian to democratic governments. In accordance with these findings, UNC political scientist James Piazza found no significant relationship between poverty, malnutrition, inequality, unemployment, inflation or economic growth and terrorism, but found that ethno-religious diversity, increased state repression, and a large number of political parties are good predictors of terrorist activity. He concluded that this might be a result of the social cleavage theory, which argues that terrorism is a result of deep social divisions in the electorate rather than socio-economic factors.
Alan Krueger and David Laitin developed the discussion surrounding the link between macroeconomic variables and terrorism in a 2008 paper that explicitly examined whether economics could explain either terrorists' national origins, or why some countries are targets of terrorism. They found that, controlling for political regime, the national economy is not a good predictor of terrorist origins, but countries that are terrorism targets are those which are economically successful.