New York, Oct 6: In a study based on inputs from among the world's most dangerous places like Iraq and Pakistan, US rating agency Moody's has said that terror attacks weaken the economy causing long-lasting effects on the economy.
In the study titled "Terrorism has a long-lasting negative impact on economic activity and government borrowing costs", Moody's Investors Service said that besides hitting economic and investment growth, acts of terror hurt government expenditure and push up costs.
"For example, in 2013 the 10 countries most affected by terrorism took an immediate and significant hit to growth, dampening GDP between 0.5 and 0.8 percentage points," said
Moody's Vice President Merxe Tudela.
"Even worse is that the negative impact continues for years after the attack, taking up to five years for the effects to peter out," Tudela added.
Moody's estimated that owing to the same terrorist episodes, investment growth takes an even greater immediate hit, declining between 1.3 percentage points and 2.1 percentage points.
"During the time period studied, terrorism has been concentrated in a few countries. More than 60 percent of all incidents in 2013 were in just four countries, with the majority of attacks occurring in Iraq (24 percent) and Pakistan (19 percent)," the agency said.
"The corresponding figure for India was 5.8 percent," it added.
The American agency said an analysis of Iraq shows that in the absence of any terror attacks from 2008 to 2013, the country's GDP could have been 8.2 percent higher and the cost of borrowing, 150 basis points lower.
"A similar analysis of Pakistan indicates that GDP growth could have been 5.1 percent higher, and the cost of borrowing, 100 basis points lower," it said.
"Over the same timeframe, the level of investment in Pakistan could have been 9.3 percent higher and in Iraq, 15.1 percent higher," it added.
"When we break out these numbers, we see that Iraq and Pakistan have lost billions of dollars in GDP and investment," Tudela said.
Moody's analysed the economic impact of the September 11, 2001 attacks in the US, the 2004 bombings in Spain and the 2005 bombings in Britain, all of which resulted in major human casualties and infrastructure damage.
"In each case, the effect on economic activity and investment was significant and lasted several years," Moody's said, citing these examples.
The study consisted of a sample of 156 countries between 1994 and 2013.