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Impacts of Terrorism on the Economy


Have you ever wondered if there is an impact on the economy of the country because of terrorism countries? Have you ever bothered to think about this topic? Do not worry, after reading this article you will be able to know how terrorism activities impact the economy. Terrorism activities are rapidly growing across the world. This should not ideally happen because it is not beneficial for any reason. But unfortunately, nothing can be done. Terrorists also play with money as they arrange money from illegal sources. So, let us now have a look at the impacts of terrorism on the economy.

Direct Economic Destruction

The most immediate and measurable impact of terrorism is physical destruction. Terrorists destroy existing plants, machines, transportation systems, workers, and other economic resources. The impact of terrorism and war is always negative for the economy, and physical destruction is a large reason why. Productive resources that might have generated valuable goods and services are destroyed. Nothing related to this improves the standard of living of individuals. Economists call this Broken Window Fallacy. This is one of the biggest components of destruction, directly taking the economic value of certain assets of zero.

Increased Uncertainty in Markets

Today, the whole world is connected. Events happening in the other corner of the globe also have a considerable impact on the entire world. So, it is wrong to assume that terrorism will only be having an impact near the areas where terrorism activities are high. No market in the world loves uncertainties. But the bad thing is, terrorism creates a lot of uncertainties. As the threats and publicity of global terrorism continue to rise, markets appear to be more and more resilient. The real threat of global terrorism from an investor's perspective is about the broader picture, not individual incidents. International investment and cooperation are lower in a world full of terrorism. Hence, the creation of uncertainties can be directly yielded to the number of terrorism activities.

Health of The State

There is an old saying in the study of political economy that reads "war is the health of the state." It means that during times of conflict, reactive governments and nervous citizens are far more inclined to give up economic and political freedoms in exchange for security. This could result in higher taxes, higher government deficits, and higher inflation. The government of a nation can control the key industries if any big emergency takes place due to terrorism activities. As a result of this, the private sector goes deep down. It implies that thousands of people lose their employment and the standard of living falls.

Tourism Sector

Tourism plays a vital role in every country’s economy. If we consider our country, a good proportion of GDP accrues from this sector. Tourist spots are usually packed and if we look into the past, many attacks have been done by terrorists near tourist spots. As a result, people start to have a negative view of those places and avoid them. This directly leads to a fall in revenue as many hotels, restaurants, and other tourist managements will not be able to receive enough revenue. Hence, it directly affects the economy.

Closing the Frontiers

This is perhaps a political consequence that will give rise to economic implications. Terrorists are usually the citizens of another country which leads to fear and stereotype towards that place. As a reaction to this, the governments of the country prefer that people of those nations should not be allowed to enter and can even imposes certain types of restrictions on trade practices. This is evident from the clash that took place between India and China. India has banned certain apps run by China. This will hit China’s economy. So, it can be said that these activities also affects the countries economy.

Fighting Terrorism

Fighting terrorism requires resources, so it does impose a direct economic cost. Terrorism is perceived as a threat, businesses, individuals, and governments spend more on security. Government and private spending on security is expected to grow. There will also be extra outlays for insurance, since terrorism has parallels to the type of insurance risks associated with natural disasters such as fires and floods, or large weather-related incidents such as hurricanes or tornados. These costs reduce the resources available for other purposes and shift them toward providing security and insurance services. A considerable amount has to be spent by the defence ministries of countries to keep this problem aside. This causes a huge burden on the economy.

I am sure after reading the above content, you are amazed at how terrorism affects the economy of a country in different ways. Keeping in mind the skirmishes between India and Pakistan, it can be said that terrorism activities do have a great economic impact in our country. Let it be buying of advances weapons from the US or Israel, or deployment of more soldiers at the border, they also have economic implications. The biggest destruction of terrorism activities is to the buildings, machinery, and industrial plants. The standard of living falls. Restrictions are imposed between countries on various grounds like trade, movement of people, etc. Uncertainty in the markets also rises. The tourism sector also falls prey to this.


So, I would like to say, whether big or small, positive or negative, good or bad, all kinds of activities have an impact on the economy of the country.

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