Terrorism and Global Economies

Picture from Orobel.com

Looking back upon the year 2016, I am filled with a sense of dread. Will I be next? How bad would my city look after an attack? And how will we cope if an international terrorist organization were to strike on our soil? Hopelessness, uncertainty and mainly a sense of fear prevails. Personally, I fear the feeling I had right after 26/11 when my entire city was on lockdown and everyone sat clutching their hearts in their hands. I fear that we will be holding our breaths so long for good news, that it will be eons before we are safe again. I fear, Fear itself.

But as I spent my year studying economies and learning market structures in detail, the one question that kept plaguing my mind was this, will our economy fall if we were ever to be attacked?  Did USA crash after 9/11? Were Paris and Brussels affected in 2016?

After immense research and a lot of questions, this is what I gathered.

Economies as individuals are affected after a terrorist attack, but not all of them act together.

For example, when 9/11 happened, Americans were shocked to their core. Businesses shut down for a while, offices shut and people were on a whole scared to roam the streets. Meanwhile the British woke up the next day and went about their normal day. They were obviously aware of the entire situation and shocked by it, but their businesses and industries remain unaffected.

But contrary to everything that took place right after 9/11, within a month, the USA economy was back to its position as a global economy. I wasn’t until 2002 that the Americans saw a downturn in their economy but that too was due to factors completely unrelated to a terrorist attack.

But the first things that are affected are the individual companies directly affected by the attack. Right after 26/11, the Oberoi Hotel and the Taj’s finances took a great hit. The rest of the economy continued as normal.  Not completely unaffected but not taking a great hit too.

The knee jerk reaction in any economy would be too hold back stocks and move to banks to safekeep their wealth. Savings would thereby increase, since people believe in savings over investment at any given time. 

In certain cases, there has been a significant decline in commodity prices. If the business has been directly affected, demand falls, bringing prices down with it. Investments decrease, since industries are now afraid to put money in a place that could potentially collapse any minute.

The things that play in favour of an economy not falling are also the days in which terrorist attacks occur. The Paris attacks happened on a Friday. Thereby allowing industries to take the weekend off and think about their next move instead of have an immediate response.

But right after a terrorist attack, the one thing that creates havoc in every investor and consumer is Fear. The feeling overpowers them and renders them temporarily useless. People were afraid to use American Airlines right after 9/11, no boats were used for a long time after 26/11 and not a single concert was played in Bataclan Hall.

Hence the greatest impact is on tourism. In every city, restaurant or hotel where a terrorist attack occurs, there is a significant decrease in customers and tourists. CST was on completely lockdown for days after 26/11, not a soul stepped foot in the rubble of World Trade Centre and Paris, once the most loved city, saw a significant decline in tourism.

But no sooner than a month later, all these services resumed. People hadn’t forgotten the fear, they only moved past it. Millions still throng to Paris, Taj and Trident are visited mainly to see the bullet marks and Brussels airport resumed normal functions.

Terrorism as an act creates short-term economic lockdowns. Industries and markets remain unaffected in the long run. Money is still circulated and consumer’s demand’s keep rising. Industries function as normal and the economy is still at par with the world.

-Vaishali Ramesh