Economic Model of Terrorism and Terrorist Activities: A Short Note

By Mitra, Siddhartha | Indian Journal of Economics and Business, June 2007 | Go to article overview

Economic Model of Terrorism and Terrorist Activities: A Short Note


Mitra, Siddhartha, Indian Journal of Economics and Business


Abstract

The financial side of terrorism has not been given due importance in the literature. This paper analyses the implications of the financial side of terrorism for the relationship between the incidence of terrorism and affluence. It is assumed that the number of recruits who volunteer to join a terrorist outfit is declining in the level of affluence. Yet the actual incidence of terrorism does not mimic this relationship. This is because of the financial side of terrorism and its implication that the incidence of terrorism is determined not just by the willingness to terrorize but also the ability to terrorize.

Key Words: Terrorism, framework, causes

JEL Classification: D7, K1

I. INTRODUCTION

The financial side of terrorism has often been ignored. Recent studies show that it is extremely important. Loretta Napoleoni (2005) estimates that the terrorist economy is of the magnitude of $ 1.3 trillion. Victor Comras (2005) reveals that Saudi nationals have pumped $ 75 billion into the Muslim World League, practically a sister organisation of Al-Qaeda, in the last four decades. Between the September 11,2001 terrorist attacks and December 2003, U.S. officials froze $138 million in terrorist assets. $75 million of these belonged to the extremely active Al-Qaeda or Taliban.

Terrorist groups use their financial resources for different purposes: motivation, training and upkeep of terrorists, rewarding terrorists for valiant acts, compensation to family members of terrorists killed in action, propaganda to obtain support of the general public, printing and distribution of literature etc. The table below shows the average expenditure in 2002 per terrorist under different heads (Jamwal, 2003) for the state of Jammu and Kashmir in India. Over and above all these expenditures there is the separate expenditure on terrorist attacks. It is seen that over the past 5 years these have decreased because groups such as the Al Qaeda have switched from a centralized system of command and financing to a franchisee approach which operates with local men and equipment (see Mark Rice-Oxley, 2006). The cost of transporting men, equipment and large sums of money over long distances is thereby avoided. Thus, while the 9/11 attacks cost $500,000, the Madrid bombings in 2004 cost only $15000 and the London attacks in 2004 a measly $2000 (Mark-Rice Oxley, 2006).

However, even though costs of engineering terrorist attacks have gone down drastically there are no developments to suggest that the cost of maintaining terrorist groups has also decreased significantly. The table above suggests that the yearly expenditure per 100 new Pakistani or Indian terrorist recruits in Jammu and Kashmir was 2.2 million U.S. dollars (PPP) in 2002 whereas for 100 new foreign recruits it was 2.8 million dollars (PPP). Similarly, for old recruits the corresponding figures were 1.25 and 1.53 million dollars (PPP) respectively. Clearly, these figures are much larger than those required for specific terrorist attacks. Moreover, the aggregates for new and old recruits do not include the sum for rewards. Each reward can cost the terrorist group as much as $23,000 (PPP). Above all this, we have the expense of the supreme leader who costs the group as much as $70,000 per year. Thus, it seems that a group with a membership of 1000 will easily have an annual budget of $15 million PPP. In this figure we have not include the expenses for propaganda and publication and printing.

The point this discussion illustrates is that financing was and continues to be a binding constraint in the activities of a terrorist group and crucially influence the number of active terrorists in a terrorist group and the effectiveness of the group. Thus, whether a terrorist group makes its presence felt not only depends upon how deeply people feel about its cause but also its financial resources. This is precisely the reason why poverty, even if it gives rise to sentiments that are associated with terrorism, might itself be a cause of why these sentiments do not result in effective or powerful terrorist attacks. …

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