Five years on

8 September 2006

The terrorist attack didn t bring globalization to an end. Nor has US productivity declined despite the increase in security costs. Yet with the Iraq war dragging on and the US less open to immigration, there may still be future costs to bear.

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A research note from economist Nariman Behravesh of Global Insight makes the following points on the fifth anniversary of attack on the World Trade Center:

Although the human costs of 9/11 are incalculable, the macroeconomic costs have been remarkably small.

The impact of the attacks was not large enough to derail the fragile recovery that started in the fourth quarter of 2001.

Both the economic costs and impact on GDP growth were much smaller than other events, such as Hurricane Katrina.

Gloomy predictions that the postattack clampdown would derail globalisation have not been realised.

Similarly, pessimistic predictions about adverse effects on productivity did not materialise.

Probably the largest macroeconomic impact has been on the federal budget. Spending on defence and homeland security has ballooned, worsening the deficit picture.

Another big impact has been slower immigration of skilled workers. This could yet have sizeable negative impacts on the longterm growth potential of the US.

While the macroeconomic impacts were limited, the economic damage to some industries (airlines and tourism) and some local economies (New York) was very big.

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