Impact of Domestic Terrorism on Economy: A Literature Review

Abstract

Terrorism has had a substantial economic effect all over the world. Statistical analysis from the literature review demonstrates the costs of the global economy at approximately 33 billion dollars in 2018 and 855 billion dollars since 2000 (Iqbal et al., 2019). After the domestic terror attacks on 11 September 2001, terrorism increased dramatically, with the sharpest upsurge between 2011 and 2014 following the post-Arab uprising violence in Syria, Libya, Yemen, and Egypt. With the rise of the Islamic State terrorist group in the Middle East, conflicts in Iraq, Afghanistan, and Pakistan became more intense. The imposition of economic sanctions has been related to an increase in domestic terrorism, postulating that when sanctions impair the financial functioning of the target country, feelings of bitterness and despair are intensified among the poor, who may lash out by turning to domestic terrorism. Terror events would appear more likely where states fail to provide, or reduce, an economic safety net to mitigate the transformative effects of economic development. Financial performance generally leads to terrorist violence. Economic sanctions lead to a rise in the rate of domestic terrorism. Terrorism is rarely found to influence growth in bivariate and trivariate specifications causally. Countries featuring minority groups’ economic discrimination are significantly more likely to experience domestic terrorist attacks. In contrast, countries lacking minority groups or whose minorities do not face discrimination are considerably less likely to experience terrorism. Highly democratic and long-enduring states are less prone to domestic terrorism than less democratic states.