Measuring terror's economic toll

TOKYO • How does one measure the impact of terrorism on economic growth?

Moody's Investors Service has constructed a terrorism index to quantify the effect on gross domestic product (GDP), government spending, investment and borrowing costs.

Attacks are rising rapidly around the world, reaching 11,823 in 2013, over twice the number in 2011, said Moody's. In per capita terms, the number of incidents tripled to 2.4 per million people in 2013.

Over 60 per cent of the attacks that year occurred in four countries - Iraq saw 24 per cent, Pakistan 19 per cent, Afghanistan 12 per cent and India 5.8 per cent.

The data covers 156 countries from 1994 to 2013.

The economic impact of such attacks can be long-lasting.

Here are some of Moody's findings: If there had been no terrorist attacks between 2008 and 2013, Iraq's GDP would have been 8.2 per cent higher by the end of the period; Pakistan's, 5.1 per cent higher.

Terrorist incidents can come in many guises, and Moody's index is a weighted average that factors in the number of incidents, fatalities and injuries, as well as a measure of property damage.

It also considers a country's size and the concentration of terrorism in just a few nations - for instance, an attack in a conflict-ridden area would have less of an impact than one in a country that rarely experiences terrorism.

Moody's found that the kind of attacks seen in the 10 most terrorism-afflicted countries in 2013 weakened GDP growth by 0.51 percentage point to 0.80 percentage point. Growth declined by up to an additional 0.59 percentage point after a year and up to 0.07 percentage point after three years.

Government borrowing costs also shot up after such attacks, rising between 41 basis points and 65 basis points within a year and up to 81 basis points a year later.

Investment growth, a key ingredient for economic expansion, can be cut by between 1.3 percentage points and 2.1 percentage points in the year of the attacks.

Moody's compiled the data from the Global Terrorism Database (GTD). In its report, the ratings agency used the GTD definition for terrorist incidents: "the threatened or actual use of illegal force and violence by a non-state actor to attain a political, economic, religious or social goal through fear, coercion or intimidation."

A version of this article appeared in the print edition of The Straits Times on October 10, 2015, with the headline 'Measuring terror's economic toll'. Print Edition | Subscribe