The Importance of Psychology in Economic Activity: Evidence from Terrorist Attacks

Working Paper No. 24331 Terrorist attacks influence economic growth and individual psychology. However, identifying the direct effect of terrorism on economics and psychology is difficult because institutions also change in response to terrorist attacks. This paper controls for institutional respons...

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Published in:NBER Working Paper Series 2018-02, p.24331
Main Author: Ahern, Kenneth R
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Language:English
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Economic theory
Terrorism
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description Working Paper No. 24331 Terrorist attacks influence economic growth and individual psychology. However, identifying the direct effect of terrorism on economics and psychology is difficult because institutions also change in response to terrorist attacks. This paper controls for institutional responses to terrorist attacks by studying people who live beyond the institutions' borders, but are exposed to the attacks. I find that terrorism leads to declines in trust, subjective well-being, and the importance of creativity and freedom. However, at the macro-level, terrorism leads to increases in economic output and household income. These results are consistent with a growing literature that finds counterintuitive responses to trauma.
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subjects Economic theory
Terrorism
title The Importance of Psychology in Economic Activity: Evidence from Terrorist Attacks
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