The Economic Impacts of the September 11 Terrorist Attacks: A Computable General Equilibrium Analysis

This paper develops a bottom-up approach that focuses on behavioral responses in estimating the total economic impacts of the September 11, 2001, World Trade Center (WTC) attacks. The estimation includes several new features. First, is the collection of data on the relocation of firms displaced by the attack, the major source of resilience in muting the direct impacts of the event. Second, is a new estimate of the major source of impacts off-site -- the ensuing decline of air travel and related tourism in the U.S. due to the social amplification of the fear of terrorism. Third, the estimation is performed for the first time using Computable General Equilibrium (CGE) analysis, including a new approach to reflecting the direct effects of external shocks. This modeling framework has many advantages in this application, such as the ability to include behavioral responses of individual businesses and households, to incorporate features of inherent and adaptive resilience at the level of the individual decision maker and the market, and to gauge quantity and price interaction effects across sectors of the regional and national economies. We find that the total business interruption losses from the WTC attacks on the U.S. economy were only slightly over $100 billion, or less than 1.0% of Gross Domestic Product. The impacts were only a loss of $14 billion of Gross Regional Product for the New York Metropolitan Area.