Economic conditions and terrorism S. Brock Blomberg a , Gregory D. Hess a,b, * , Akila Weerapana c a Department of Economics, Claremont McKenna College, 500 E. 9th Street, Claremont, CA 91711, USA b CESifo, Munich, Germany c Department of Economics, Wellesley College, 106 Central Street, Wellesley, MA 02481, USA Received 1 May 2002; received in revised form 1 August 2002; accepted 1 April 2003 Available online 15 April 2004 Abstract We explore the links between the incidence of terrorism and the state of a country’s economy. Groups that are unhappy with the current economic status quo, yet unable to bring about drastic institutional changes, may find it rational to engage in terrorist activities. The result is a pattern of reduced economic activity and increased terrorism. In contrast, an alternative environment can emerge where access to economic resources is more abundant and terrorism is reduced. Our empirical results are consistent with the theory. We find that for democratic, high income countries, economic contractions lead to increased likelihood of terrorist activities. D 2004 Elsevier B.V. All rights reserved. JEL classification: H3; N4 Keywords: Growth; Terrorism; Political economy 1. Introduction In this paper we first outline a simple theory that provides structure for thinking about the channels through which economic outcomes can influence terrorist activities and then examine empirically the presence of these channels by constructing and employing a rich panel data set of 127 countries from 1968 to 1991. Our analysis investigates the importance of standard economic variables such as GDP growth per capita and investment in determining the onset and intensity of terrorist attacks. In doing so, we provide a systematic account of how economic developments influence terrorism. 0176-2680/$ - see front matter D 2004 Elsevier B.V. All rights reserved. doi:10.1016/j.ejpoleco.2004.02.002 * Corresponding author. Department of Economics, Claremont McKenna College, 500 E. 9th Street, Claremont, CA 91711, USA. Tel.: +1-909-607-3686; fax: +1-909-621-8249. E-mail address: ghess@mckenna.edu (G.D. Hess). www.elsevier.com/locate/econbase European Journal of Political Economy Vol. 20 (2004) 463–478