The European Union (EU) countries lost around €180 billion in GDP terms due to terrorism between 2004 and 2016, according to a new study. According to the study, changes in economic behavior could be the reason behind the observed negative effects on economic growth, as people and companies change their purchasing, saving and investing behaviors following terror attacks. The UK (€43.7 billion) and France (€43 billion) suffered the highest economic losses in GDP terms due to terrorism.
The European Union (EU) lost around €180 billion in GDP terms due to terrorism between 2004 and 2016, according to a new study from the not-for-profit research organization RAND Europe.
The report, prepared for the European Parliament, shows that terrorism is negatively associated with economic growth in Europe.
Beyond those who have been directly physically affected by terrorist attacks, the extensive coverage of terrorist attacks through multiple media and social media channels has substantially increased the amount of people and companies that could be psychologically affected. This subsequently affects their economic behavior.
According to the study, changes in economic behavior could be the reason behind the observed negative effects on economic growth, as people and companies change their purchasing, saving and investing behaviors following terror attacks.
While consumer purchasing habits remained relatively stable, and in some cases increased in the aftermath of a terror attack, the evidence provided in the study suggests that investments may have decreased, with a shift to less efficient and lower growth-enhancing public expenditure.
However, these negative effects on economic growth tended to be short-lived and only apply within the year after the terror attack.
RAND says that the research used econometric modelling techniques to quantify the impact of terrorism on the European economy by looking at the effect on GDP growth per capita during the 12-year period between 2004 and 2016 across all 28 EU nations.
The UK (€43.7 billion) and France (€43 billion) suffered the highest economic losses in GDP terms due to terrorism. This was closely followed by Spain (€40.8 billion), and then Germany (around €19.2 billion).
Marco Hafner, a senior economist at RAND Europe who led the analysis, says, “Besides the obvious physical devastation and emotional trauma, there is a negative impact on economic growth in the countries where these terrorist attacks take place. When you bear in mind the infrequent nature of terror events in Europe, the GDP losses that occur to national economies are notable.”
Hafner continues, “A clear message from the report is that terrorist attacks can lead to a range of psychological effects that mean people and companies change their economic behaviours. For instance, some people may value their future less and ‘live in the moment more.’ These effects can impact how people consume and save, potentially leading to an increase in consumption and decrease in savings and investment rates by companies. The end result is economic losses across Europe.”
In addition to negative economic growth, the report also outlined the associations between terrorism and the self-reported levels of life satisfaction, happiness and trust from EU citizens. Perhaps unsurprisingly, more terrorist attacks are associated with lower levels of life satisfaction and happiness among the population.
Hafner notes, “The softer measures of life satisfaction, happiness and trust that are negatively affected highlight the wide variety of impacts from terrorism.”
The report outlines a number of potential policy options to reduce the possibility of terrorist attacks and subsequent economic costs. Part of these focus on building greater EU-wide coordination and knowledge sharing on the most effective counter terrorism and radicalization initiatives, and greater information sharing across different member states and with Europol and Eurojust. However, the report notes that some policy options could have implications for human rights legislation and data protection across the EU.
— Read more in The Fight Against Terrorism: Cost of Non-Europe Report (RAND, 6 June 2018)