Macroeconomic and Industry Impacts of 9/11: An Interindustry Macroeconomic Approach

This paper is part of a collection organized by the Economic Impact Modeling Forum (EIMF) that convened in 2008 to quantify the economic impacts of the terrorist attacks of September 11, 2001 (9/11). We consider the aggregate and industry-level impacts of the event. The general equilibrium model employed features both full industrial detail and a consistent, bottom-up representation of the macroeconomy. We employ a set of primary impacts on the Manhattan financial industry and the national travel industry as identified and estimated by EIMF colleagues. These impacts are imposed on a historic baseline economy which includes the 9/11 event. The results provide an estimate of what the economy would have experienced by avoiding 9/11, including the impacts of direct business interruption to specific sectors, the secondary impacts on related industries, and the tertiary impacts across the economy. The results show that 9/11 did affect economic activity negatively over 2001 to 2003. As is typical for a macroeconomic neoclassical growth model, the aggregate impact of the conjectured shocks dissipates over time. Indeed, this model shows that historic economic activity in 2004 to 2006 may have been elevated over what would have occurred in those years had 9/11 not occurred. We argue, therefore, that the full impact on activity and income should be computed as the net impact over 2001 to 2006. We find that the net, six-year effect on real GDP is relatively minor, at about 0.3 percent of GDP of 2001. Effects on real national income and personal consumption, however, were more significant, at about 0.6 percent.