A Study on the impact of terrorism on international business and effects of 9/11 attacks on world business. Dated: 26.08.2009

1. An empErical investigation
AnkurSrivastava
Ankur.srivastava@hotmail.co.uk

2. “TERRORISM”
 Common definitions of terrorism refer only to those
violent acts which are intended to create fear (terror),
are perpetrated for a religious, political or ideological
goal, deliberately target or disregard the safety of non-
combatants (civilians), and are committed by non-
government agencies.
 Some definitions also include acts of unlawful
violence and war. The use of similar tactics by criminal
organizations for protection rackets or to enforce a
code of silence is usually not labeled terrorism though
these same actions may be labeled terrorism when
done by a politically motivated group.

3. PejorativismOF THETERM…
There is the famous statement:
“One man's terrorist is another man's freedom fighter.”
But that is grossly misleading. It assesses the validity
of the cause when terrorism is an act. One can have
a perfectly beautiful cause and yet if one commits
terrorist acts, it is terrorism regardless.”

4. ORIGINOF THE TERM
 Terror" comes from the Latin verb terrere
meaning "to frighten”.
 In November 2004, a United Nations Secretary
General report described terrorism as any act
"intended to cause death or serious bodily harm
to civilians or non-combatants with the purpose
of intimidating a population or compelling a
government or an international organization to
do or abstain from doing any act".

5. TYPESOF TERRORISM
 Civil disorder
 Political terrorism
 Non-Political terrorism
 Limited political terrorism
 Official or state terrorism
 Social revolutionary terrorism
 Nationalist-separatist terrorism
 Religious extremist terrorism

6. In this paper, we examine the impact of
terrorism and warfare on international
trade.
Identify the effect of terrorism on trade
empirically.
We find that violence strongly affects the
pattern of trade; countries that are
plagued by a larger number of terrorist
attacks trade significantly less with each
other.

7. RelationshipB/wpolitics& Terrorism
A large and diverse body of literature has
documented the relationship between political
variables and international trade.
One line of research focuses on the impact of
trade on political conflict (mutual trade
dependencies diminish hostility and promote
cooperation )
Another line of research studies the impact of
political factors on trade (trade flows are greater
between countries with common interests and
similar democratic institutions )

8. While the impact of terrorism on trade
may vary across time and place, violence
and warfare generally imply additional
costs for transactions so that, if
anything, we would expect a negative
association between terrorist activity
and the volume of trade.
There are at least three principal
ways in which warfare may be a
hindrance to international trade...
These are.....

9. First, terrorismleads to insecurityand thereby raises the costs of
doing business.
Second, the typical response to an increasein terrorist activity is an
increasein security measures. Stronger security regulations, however,
imply that trade becomes more expensive, suchas by increasing
deliverytimes.
Third, there is the risk of a direct destruction of tradedgoods,
disruptionof industry supplychains or destructionof particular
transportmodes

10. Impacts of terrorism
Mainlytwo type of effects:-
1. Short Term Impacts.
2. Long Term Impacts.

11. SHORTtermIMPACTOF TERRORISM
 1) Loss of Human Capital
The human costs have been horrendous. Estimates are
in past 5 years 4000+ were killed in terrorist attacks.
This puts India next to Iraq both in terror deaths and
terror incidents. The recent 26/11 Mumbai attacks
itself left 257-300 dead and 700 injured which.
 2) Investor Behavior
Frequent attacks on commercial & government
institutions shatter the confidence of the investors
causing heavy investment drainage. One example of
the same is the terrorist attack in Indian Parliament
in 2001, which internationally provoked insecurity &
discouraged the investors (FII's & FDI's), obstructing
the economic growth.

12. SHORTtermIMPACTOF TERRORISM(Cont…)
 3) Short Term Financial Loss
Post 26/11 the Taj & Trident Hotels incurred heavy loss as operations
were halted for 3-4 months. After 26/11 Mumbai attack Pak cricket
team had to cancel its Mumbai tour due to which BCCI has incurred a
loss to the tune of INR 120 crore. Another such incident was Post Ex-
PM Indira Gandhi's assassination 1984 riots which hit the economy
severely especially the Agriculture & Transport industry that lost
hundreds of crores
 4) Retrenchment effect on Specific Industries
The Jaipur serial blasts, J&K Terrorism & Mumbai 26/11 attacks did
have immediate and concentrated impacts on a number of industries:
most notably, airlines, aerospace, travel, tourism, insurance, lodging,
restaurants, recreation and related activities. Gross earnings from
foreign tourists are currently around 1% of GDP. Post 26/11 terrorist
attack estimates suggest that nationally hotels have seen about 60%
booking cancellations. Hotel occupancy in western India is down
some 25%

13. Long termIMPACTOF TERRORISM
1) Political Instability
The assassinations of 2 Ex-PM of India, Mrs. Indira Gandhi, Mr.
Rajeev Gandhi already had jolted Indian politics & economy at
large. India had lost 2 of its strongest pillars which otherwise
would have taken Indian politics, Business & industry at
unimaginable heights. Recently speaking the siege of South
Mumbai has taken toll as home minister Shivraj Patil, Chief
minister Vilasrao Deshmukh & Home minister R.R. Patil had to
resign. This further unstabilized the Indian industry from a
long-term perspective. The Political instability at times have also
let to erosion of FII's & FDI's.

14. IMPACTOF TERRORISM
(Cont…)

2) Global Implications
India, post Kargil war then Attack on Parliament
now 26/11 has lost millions of business as the
trade link between the two countries are frozen
during such period. Agri-Exporters in bordering
states have taken heavy burns. This has resulted
in unemployment in these regions, which in turn
again triggers riots. 26/11 Attack involved foreign
hostages and places where business leaders,
executives and foreigners frequented.

15. IMPACTOF TERRORISM
(Cont…)
 3) Long Term Financial Loss
The direct economic damage done by terrorist attacks:
buildings and infrastructure destroyed, productive
lives ended. The structural damages post 26/11 attacks
was amounting to total of INR 500 crores,
which subsequently took its toll on the insurance
industry. Another form of longer-term costs security
involves the opportunity cost of spending additional
money to fight terrorism. Currently India ranks on 9th
position in the world for highest military expenditure
(2009-10),

16. Major terrorist incidents
 The Wall Street bombing at noon on
September 16, 1920 killed thirty-eight people
and injured several hundred.
 Attack on World Trade Centre of New York City
on 11th Sep. 2001.
 Attack on Indian Parliament on 13th Dec 2001.
 Terror attack on Hotel Taj & CST Railway
station on 18th Nov.2008.
 Attack on 2 nightclubs in Bali simultaneously
on the night of 12th October 2002.

17. Mumbai C.S.T. aftremath…

18. Aftermath9/11…

19. 9-11 Attack& its Effect
 Following the September 11, 2001, terrorist
attacks on American soil,much shock
reverberated around the world.
 Following the September 11, 2001, terrorist
attacks on U.S. soil, feelings of uncertaint
immediately ensued regarding national
security as fear loomed of possible future
attacks.

20. The Impact of 9/11 onthe US StockMarket
 An examination of the Dow’s movements
following terrorist attacks against US interests is
conducted simply to gauge the stock market
during periods of uncertainty brought about by
fear and shock.
 In the meantime, Table I highlights the Dow
Jones’s resilience to terrorist attacks against U.S.
interests.3 Indeed, the U.S. stock market has
demonstrated remarkable resilience to terrorism
since the 1920 Wall Street bombings which
resulted in 40 deaths.

21. Effect On DowJonesIndexAftermath…

22. The Impact of 9/11 onUS EconomicGrowth
 While, overall, the 9/11 attacks had a minute impact on
the US economy, New York’s economy endured a direct
impact, both to its private and public sector areas.
 “The destruction of physical assets was estimated in
the national accounts to amount to $14 billion for
private businesses, $1.5 billion for State and local
government enterprises and $0.7 billion for Federal
government. Rescue, cleanup”

23. HikeIn International Oil Prices

24. EFFECTOnconsumer Expenditure power

25. Fallin FDI Due To InfectionWithTerrorism

26. Inference
 Terrorism violence strongly affects the pattern of
trade; countries that are plagued by a larger
number of terrorist attacks trade significantly less
with each other as violence and warfare generally
imply additional costs for transactions so that, if
anything, we would expect a negative association
between terrorist activity and the volume of trade.