Terrorism and the Impact on the Economic Growth in France: A Synthetic Control Approach

Abstract

This thesis maps out whether terrorism affects a country’s economy and explains which factors it affects in order to have an impact on the economic growth. We have chosen to look at the coordinated terror attacks in Paris, 13th of November 2015, and our research question is as follows:

“Did France experience a change in economic growth after the terrorist attacks 13th of November, 2015?”. If the answer to this question is yes, we’ll also try to answer the sub- question: “How large was this impact?”.

We think this is an interesting topic because terrorism is a current problem in Europe. Many countries rely on the tourism industry as an important source of income, and from theory we know that terrorists target tourist destinations.

To answer our questions we have used the synthetic control method as a tool to find and estimate the possible losses France have experienced from the terrorist attacks. We have gathered data from several European countries, and with synthetic control, we create a hypothetical France where terrorism is absent.

We found that terrorism have caused a negative effect on the economic growth in France, and that France have experienced a possible loss of €825 in real GDP per Capita. According to our analysis, we have discussed that factors that have an impact on this effect is touristic behavioral changes, costs involving renovation of the targeted areas, medical costs due to injuries, and increases in security measures.