CREATE Study Finds 9/11 Terrorist Attack Impacts Less than Previously Estimated

Los Angeles, Calif. – A comprehensive study spearheaded by the USC-based Center for Risk and Economic Analysis of Terrorism Events (CREATE) has determined that the economic impacts of the Sept. 11, 2001 terrorist attack were actually less severe than previously estimated.

Researchers evaluating the impact on the U.S. economy as a whole arrived at figures that ranged on average from $35 billion to $109 billion of gross domestic product, or between .5 percent and 1 percent of the GDP. Previous studies have estimated losses of as much as $500 billion, or 5 percent of the annual GDP.

The findings, published in a just-released special issue of Peace Economics, Peace Science, and Public Policy, underscores the resilience of the U.S. economy and provides a benchmark for evaluating the economic impact of other “shock" events ranging from natural disasters to the current mortgage meltdown.

Among other key findings in the study, which is comprised of eight research papers:

  • The total business interruption losses from the 9/11 attacks on the U.S. economy was just $109 billion, or 1 percent of the Gross Domestic Product. The decline in the Gross Regional Product for the New York Metropolitan Area was only $14 billion, or 1.2 percent of the economy (from a paper co-authored by University of Southern California research professor Adam Rose). 
  • Looking specifically at the impact on the World Trade Center in New York City, researchers estimated the total physical capital loss to be $26.8 billion and lifetime earnings loss at $9.7 billion, and a total estimated stock loss of $36.5 billion in 2006 dollars. Wage and salary income was roughly $6 billion (in 2006 dollars) lower than it would have been if the attack hadn’t occurred (from a paper by Jason Bram, Andrew Haughwout, and James Orr of the Federal Reserve Bank of New York). 
  • A paper co-authored by USC professors Peter Gordon, James Moore, and Harry Richardson attempted to separate the individual effects of the recession from the 9/11 attack. Despite the challenges in doing so, they examined declines in industrial production and concluded that the national economic impact of 9/11 appears to have been modest and short-lived. At the regional level, they found the impact was seen more in spurring relocations than in reducing economic activity. 

The journal issue of Peace, Economics, Peace Science, and Public Policy was co-edited by Adam Rose, a research professor with the USC School of Policy, Planning and Development and Coordinator for Economics with CREATE, and S. Brock Blomberg, professor of Economics at Claremont McKenna College.

The study is composed of a series of eight research papers coordinated by the USC-based CREATE, which was the first of more than a dozen University Centers of Excellence on Research and Education established by the Department of Homeland Security to provide independent analysis of terrorism and natural disasters.

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“This is the most comprehensive study to date on the economic impacts of 9/11, and it can be applied towards future planning and preparation in the event of future terrorist attempts," said Adam Rose, a USC professor and Coordinator for Economics with CREATE. “It shows that Osama bin Laden’s policy strategy to damage the U.S. economy was short-lived in its effects due to the resiliency of the U.S. economy."

Researchers presented preliminary portions of their findings during the North American Regional Science Council Meetings last November in New York City, and have now released the detailed final report. The study is significant because it contributes to a long-standing tradition of economic research attempting to quantify the economic impact of major world events, such as natural disasters and the current worldwide recession.

The findings are expected to assist policy-makers as they craft difficult decisions over how much money to set aside to protect the country against the possibility of future terrorist attacks.

Using a wide range of markers that distinguish it from previous assessment studies, the analysis consists of “bottom-up studies," which measure the extent of economic impacts on individual businesses and their responses, and then calculates indirect (multiplier or general equilibrium) effects. It also includes “top-down studies," which examine the overall economy and includes adjustments for general financial trends, such as the effects of the U.S. recession prior to 9/11, and countervailing monetary and fiscal policy. Some studies look specifically at the New York City metropolitan area economy.

What distinguishes this study from other studies on the economic impacts of 9/11 is the inclusion of resilience as a factor in allowing for the economy to adapt to unusual circumstances. For example, 98 percent of the businesses in the World Trade Center area didn’t fail after the attacks. Instead, they relocated outside of the destroyed zone, primarily in the New York City metropolitan area. Another example of how resiliency mitigated the economic blow is how the market system worked through price signals to reallocate resources.

The CREATE study also took into consideration behavioral linkages, which are typically over-reactions to a situation that exacerbates the losses. The main example of this is the almost two-year decline in U.S. domestic airline travel as a result of people avoiding planes out of fear of a similar attack.

Researchers noted that the study doesn’t include several categories of other sociological and environmental impacts, such as the value of 3,000 lives lost in the event or the cost of treatment for post-traumatic stress syndrome.

The eight teams involved in the project used the CREATE Economic Impact Modeling Forum (EIMF), which is patterned after a similar approach used successfully for the past 25 years by the Stanford Energy Modeling Forum. The approach involves a series of inquiries, discussions and agreements by researchers that then undergo a rigorous process of reiterations to narrow the range of estimates. The modeling approaches included economic simulation, time series analysis, financial analysis and regional economic analysis.

The leaders of the research teams involved in the study are affiliated with the Federal Reserve Bank of New York, Regional Economic Models, Inc., University of Maryland’s INFORUM, Claremont McKenna College, the Department of Homeland Security, RMS, Inc, and the University of Southern California. Adam Rose and Brock Blomberg served as co-editors of the journal issue just released.

Loss to U.S. Economy Calculated at .5 percent to 1 percent of GDP vs. 5  percent of GDP


For more information, contact: USC research professor Adam Rose at [email protected] or (213) 740-1716.
For a copy of the study, go here: