ABSTRACT
This paper conducts a systematic investigation of the incidence and economic costs of terrorist attacks at the country level. We use newly assembled data sets on terrorist attacks, natural disasters and currency crises to answer three different questions: what are the determinants of terrorism; is there an output cost following a terrorist attack; and is that cost larger or smaller in the case of democracies. We find that rich countries are the most prone to suffer attacks while democracies are, if anything, less vulnerable than other countries. The cost to output of a terrorist attack is quantitatively small and closely associated with the occurrence of an event rather than the number of casualties. Finally, we find robust evidence that a terrorist attack imposes a lower output cost the more democratic a country is.
