The Open Society Assesses Its Enemies: Shocks, Disasters and Terrorist Attacks

This paper conducts a first systematic investigation of the determinants and costs of terrorism attacks at the aggregate level. We use newly assembled datasets on terrorism attacks, natural disasters and  bank and currency crises to answer three questions: what are the determinants of terrorism incidence, is there an output cost after a terrorist attack and do democracies suffer a larger or smaller cost? We find that rich countries are the most prone to suffer attacks while democracies are neither more nor less vulnerable than other countries. There is a cost to terrorism, which is quantitatively small and associated with the occurrence of an event rather than with the number of casualties. Finally, we find strong evidence that the output cost of attacks is smaller in democracies.