Journal of Conflict Resolution 54(2) 331–353 © 2010 SAGE Publications Reprints and permission: http://www. sagepub.com/journalsPermissions.nav DOI: 10.1177/0022002709355922 http://jcr.sagepub.com The Economic Cost of Harboring Terrorism Efraim Benmelech, 1 Claude Berrebi, 2 and Esteban F. Klor 3 Abstract The literature on conflict and terrorism has paid little attention to the economic costs of terrorism for the perpetrators. This article aims to fill that gap by examining the economic costs of harboring suicide terror attacks. Using data covering the universe of Palestinian suicide terrorists during the second Palestinian uprising, combined with data from the Palestinian Labor Force Survey, the authors identify and quantify the impact of a successful attack on unemployment and wages. They find robust evidence that terror attacks have important economic costs. The results suggest that a successful attack causes an increase of 5.3 percent in unemployment, increases the likelihood that the district’s average wages fall in the quarter following an attack by more than 20.0 percent, and reduces the number of Palestinians working in Israel by 6.7 percent relative to its mean. Importantly, these effects are persistent and last for at least six months after the attack. Keywords economic costs, suicide terrorism, harboring 1. Introduction One of the main goals of terrorism is to impose economic, psychological, sociological, and political costs on the targeted society to coerce its government into granting politi- cal and territorial concessions. Although the success of terrorists in achieving this goal is still being debated (Gould and Klor 2009), there is a growing body of empirical 1 Department of Economics, Harvard University, Cambridge, MA, USA 2 RAND Corporation, Santa Monica, CA, USA 3 Department of Economics, Hebrew University, Jerusalem, Israel Corresponding Author: Efraim Benmelech, Department of Economics, Harvard University, Littauer Center, Cambridge, MA 02138 Email: effi_benmelech@harvard.edu at RAND LIBRARY on May 4, 2010 http://jcr.sagepub.com Downloaded from