IMPACT OF TERRORISM ON

GLOBAL TRADE AND

ECONOMY
(CASE STUDY OF PAKISTAN )
RAEES AHMAD 0123 HUSNAIN ALI. 0062
ASIF JAVED 0059 SAMEER MAZHAR
0061
INTRODUCTION

• Terrorism has a profound impact on trade and the economy, causing widespread devastation and disruption to
businesses, industries, and entire nations. The effects of terrorism can be far-reaching, leading to:-
• Reduced foreign investment and tourism
• Disruption of global supply chains
• Increased costs for security and insurance
• Decreased economic growth and development
• Instability in financial markets
• Loss of human capital and talent
• Damage to infrastructure and property
• Decreased consumer confidence and spending
• Increased poverty and inequality
GLOBAL IMPACT OF TERRORISM

• Reduced Global Trade:

• - Economic Losses:
• - Decreased Foreign Direct Investment (FDI):
• - Increased Costs:
• - Reduced Economic Growth:
• - Instability in Financial Markets:
• - Decreased Tourism:
• - Disruption of Global Supply Chains:
CONTINUE…..

• Reduced Consumer Confidence:

• - Increased Poverty and Inequality:
• - Human Capital Loss:
• - Infrastructure Damage:
• - Reduced Government Revenue:
ECONOMIC INDICATORS AFFECTED BY
TERRORISM
• Gross Domestic Product (GDP)
• Foreign Direct Investment (FDI)
• Trade
• Inflation
• Unemployment
• Consumer Confidence
• Stock Market Performance
• Tourism
• Infrastructure Investment
• Human Development Index (HDI)
THEORETICAL FRAMEWORK

• Liberalism theory applies on this topic, Liberalism suggests that countries engaged in
international trade and economic exchange are less likely to engage in conflict, as they have a
vested interest in maintaining peaceful relations to protect their economic interests. However,
terrorism disrupts this equation by introducing an external factor that can disrupt trade and
economic activity, despite the interdependence of countries.
• Example:
• Pakistan's strategic location and ports make it an important transit country for international
trade, particularly for Afghanistan and Central Asian states.
• However, terrorist attacks and instability in Pakistan have disrupted trade routes, increased
transportation costs, and discouraged foreign investment, ultimately affecting the country's
economy and its ability to engage in international trade.
CASE STUDY OF PAKISTAN

• The world is currently confronting terrorism in different manifestations. After the 9/11 terrorist
events, the phenomenon of terrorism has abruptly changed the socioeconomic and geopolitical
situation of the world. Terrorist groups have linkages with each other and are utilising each other‟s
areas for recruitment and training, exchanging illegal weapons, engaging in joint planning and
ventures, and also providing administrative and other logistic support.
• Pakistan is also facing the menace of terrorism which is eroding the country‟s social structure,
economic development and political system. The acts of terrorism are threatening Pakistan‟s law
and order situation, violating human rights of the citizens, damaging basic infrastructure and
economic opportunities. The immediate costs of terrorist acts are loss of human lives, destruction of
property and infrastructure and curtailment of short-term economic activity.
CONTINUE

• Additionally, terrorism creates uncertainty, reduces confidence and increases risk perceptions;
leading to lower rates of investment and lower economic growth. In fact, Pakistan has not only lost
precious lives and infrastructure; according to official estimates, it has also suffered a loss of around
$ 35-40 billion since 2001-2002. Pakistan‟s economic growth came to a near halt at around 2.00
per cent in fiscal year 2009, not only as a result of the global financial crisis, but also because of
internal issues. These included a war on terror launched by security forces in Khyber paktunkhwa
province and the Federally Administrated Tribal Areas (FATA) bordering on Afghanistan, and the
resultant displacement of some three million people from their homes. Both the war on terror and
the rehabilitation of the internally displaced persons (IDPs) consumed a big chunk of the
government‟s financial resources, thus widening the fiscal deficit and halting economic growth
CONTINUE

• Pakistan has suffered more than any other country due to the war on terror. With the threat of
terrorism, normal business requires more time and extra security. Thus, terrorism leads to a general
slowdown in economic activity. Moreover, the terrorists have challenged the writ of the government
by creating chaos and uncertain conditions that have tarnished the soft image of Pakistan.
According to analysts of international economics, the soft image is like a cashable commodity, as it
is an important source for attracting foreign direct investments (FDI). The FDI fell to $ 463 million
during the first quarter as against $1.116 billion during the same period the previous year, a decline
of 58.5 per cent. The frequent incidents of terrorism have given a bad name to Pakistan in the world
and international markets. Terrorism has damaged the economy, polity and society of Pakistan, on
multiple levels.
THE ECONOMIC COST OF TERRORISM

• Direct cost:
• Infrastructure Damage:
• Terrorist attacks have led to the destruction of critical infrastructure, including roads, bridges, schools, and hospitals. The costs associated with
rebuilding and repairing this infrastructure are significant.
• For example, the destruction caused by terrorist activities in the Federally Administered Tribal Areas (FATA) has required extensive
reconstruction efforts, diverting resources from other developmental projects.

• Loss of Life and Health Costs:

• The loss of human lives and the injuries sustained during terrorist attacks result in significant economic costs, including healthcare expenses
and loss of productivity.
• According to estimates, the direct and indirect costs of treating injuries and long-term health issues arising from terrorism place a substantial
burden on the healthcare system.
CONTINUE

• Indirect cost:
• Impact on Trade:
• Terrorism disrupts trade routes and increases trade costs. The perceived risk associated with terrorist activities leads to higher insurance
premiums for shipping and transportation.
• Export industries, particularly textiles and agriculture, have faced challenges due to disrupted supply chains and increased transportation costs.
For instance, trade routes through Balochistan and Khyber Pakhtunkhwa have been particularly affected.

• Foreign Direct Investment (FDI):

• Terrorism significantly deters foreign direct investment. Investors are wary of the risks associated with political instability and terrorist threats.
• Data from the State Bank of Pakistan shows a decline in FDI inflows during periods of heightened terrorist activity. For example, FDI dropped
from $5.4 billion in 2007 to $2.2 billion in 2010, correlating with an increase in terrorist incidents.
CONTINUE

• Quantifying the Economic Cost

• According to a report by the Ministry of Finance, Government of Pakistan, the direct and indirect costs of terrorism from 2001 to 2018 were
estimated to be around $126.79 billion. This includes losses in foreign investment, infrastructure damage, and increased security expenditures.
• The Pakistan Economic Survey 2017-18 also highlighted that terrorism had significantly slowed down economic growth, with an estimated
reduction in GDP growth by 2-3% annually.

• Government Expenditures:
• The Pakistani government has had to allocate significant resources to counter-terrorism efforts, including military operations, intelligence, and
security measures. This diverts funds from other crucial areas like education, healthcare, and infrastructure development.
• The economic cost of military operations, such as those in North Waziristan, has been substantial, with billions of dollars spent on ensuring
security and stability.
TERRORISM IMPACT ON PAKISTAN’S FDI

• Reduced FDI inflows:

• - Uncertainty and risk:
• - Perceived country risk:
• - Deterrent to investment:
• - Impact on specific industries:
• - Reduced economic growth:
• - Decreased investor confidence:
• - Diversion of investment:
CONTINUE…….

• 2020: $1.3 billion

• - 2019: $1.5 billion
• - 2018: $2.2 billion
• - 2017: $3.5 billion
TRADE DISRUPTIONS

• Average of two terrorist attacks per day-

• Each terrorist attack costs $12 million to exports-
• Average monthly loss in exports due to terrorism is $500 million-
• Pakistan lost nearly $30 billion in exports from 2006-2009, with $18
billion of that being attributed to terrorism-
• A single terrorist attack costs $18 million to exports after the
assassination of Benazir Bhutto, due to increased intensity and severity
of attacks
CONTINUE……

• -Exports: $25.5 billion (2020)

• - Imports: $45.8 billion (2020)
• - Trade deficit: $20.3 billion (2020)
IMPACT ON PAKISTAN’S KEY ECONOMIC
SECTORS

• Agriculture
• Manufacturing
• Infrastructure
• Textiles
• Tourism
SOCIO ECONOMIC CONSEQUENCES

• -Poverty
• - Unemployment
• - Inequality
• - Human capital loss
GOVERNMENT RESPONSE AND MEASURES

• -Military operations
• - Counter-terrorism strategies
• - Economic reforms
• - International cooperation
RESEARCH QUESTIONS

• What is the overall economic impact of terrorism on Pakistan's

economy?
• How does terrorism influence foreign direct investment (FDI) in
Pakistan?
• In what ways has terrorism disrupted Pakistan's trade with other
countries?
• How has terrorism affected key economic sectors in Pakistan, such as
agriculture, manufacturing, and tourism?
• What measures has the Pakistani government taken to mitigate the
economic impact of terrorism?
 CONCLUSION

• conclusion, terrorism has a significant and far-reaching impact on global trade and
economy. Terrorism disrupts global supply chains, leads to economic losses, and
undermines economic development. It also has a ripple effect, impacting multiple
sectors and countries, and can lead to a decline in global economic prosperity.

• Therefore, it is essential for governments, international organizations, and the private

sector to work together to Prevent and combat terrorism, Promote economic
development and growth, Enhance international cooperation and trade, Build resilient
and sustainable economies, Protect human life and dignity
• By doing so, we can create a more peaceful and prosperous world, where economic
growth and development can thrive.