Volume 15, Issue 2

Editor's Introduction

We review our earlier studies that estimated the overall economic cost of the 9-11 attacks on New York City. Since the attack took place during a national and local recession, we emphasize the importance of controlling for economic conditions to obtain a precise estimate of the attack's effects. First, we estimate the physical capital loss, based on the cost required to clean up the site and repair and replace the destroyed and damaged infrastructure. The estimated foregone lifetime earnings of the workers killed in the attack are used to gauge the loss of human capital. The total physical capital loss was estimated to be $21.6 billion and the lifetime earnings loss was estimated to be $7.8 billion, yielding a total estimated loss of $29.4 billion ($2001). We provide estimates of the disruptive effect on employment and earnings by comparing the actual path of employment following the attack with a counter-factual path constructed from an auto-regressive model that predicts trends in NYC private-sector employment. We find a net job shortfall of roughly 65,000 jobs immediately after the attack, converging to near zero by the end of 2002. Over this period it is estimated that wage and salary income was roughly $6 billion ($2006) lower than it would have been if the attack had not occurred. In addition to these short run costs, we also investigate the extent to which the attack may have adversely affected the city's longer-term economic growth potential by examining real estate markets. With the possible exception of downtown commercial real estate, we find little evidence that perceptions of the city as a place to live or do business were adversely affected by the attack.

This paper presents a summary of the overall property damage and final insured loss estimates as a result of the World Trade Center (WTC) disaster on September 11, 2001. Initial research completed at the time of the event was combined with available information since this time to develop final monetary estimates for damage to buildings and their contents, infrastructure, and cleanup costs. In addition, the insured loss as a function of property damage is presented, emphasizing the enormous impact of this event on the U.S. insurance industry.

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.

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.

It is difficult to separate the individual effects of the recession and the 9/11 attack. Within this severe constraint, the national economic impact of 9/11 appears to have been both modest and short-lived. This is supported by the sharper decline in industrial production in 2001 than in 2002. At the regional level, the impacts seem to be more in the form of regional relocational shifts (to New Jersey). The New Jersey decline in 2002 was almost certainly a recession rather than a 9/11 impact, because New Jersey gained in 2001. New York City is a little different from other spatial units because it held up better in the period preceding the 2001 recession. There are differential sectoral impacts both regionally and nationally, e.g., finance and business services vs. manufacturing. Our results show only one significant change; the effect of Finance and Insurance sector on Professional, Scientific, and Technical services.

We perform an empirical investigation to estimate the macroeconomic cost of September 11 attacks on the United States economy. We estimate the impact of the attacks to be approximately a 0.50 percentage point decrease in GDP growth or $60 billion. Our upper bound estimate of the impact of September 11 is approximately twice that or $125 billion.

Regional Economic Models Inc. (REMI) has developed this comprehensive study evaluating the economic impact of 9/11 on the air industry and the overall economy of New York City and the surrounding region. Using data inputs collected from a variety of sources and REMI's own Policy Insight model for the primary analysis, REMI is able to recreate economic interactions on a regional basis and simulate the economic impact of the events of 9/11. The report will quantify the economic impacts using various economic indicators, including employment, gross regional product, output, real disposable personal income, labor productivity, and population. These impacts are analyzed for New York City (separating Manhattan itself as one region and combining the four other boroughs of the city as another region) and nine other regions of the New York City Consolidated Metropolitan Area. The impacts are also shown for the rest of the USA and combined to show the results for the entire New York City Consolidated Metropolitan Area and the USA as a whole.REMI utilized their Policy Insight software to conduct this comprehensive analysis. REMI Policy Insight is a structural forecasting and policy analysis model. It integrates input-output, computable general equilibrium, econometric and economic geography methodologies. The model is dynamic, with forecasts and simulations generated on an annual basis and behavioral responses to wage, price, and other economic factors. The overall structure of the REMI model can be summarized in five major blocks: output and demand, labor and capital demand, population and labor force, wages, price, and cost, and market shares.

Estimates of the consequences of human-made and natural disasters are crucial for informing decision making by both public and private actors. The 9/11 attack stands out as a particularly important event whose consequences need to be well understood. This study evaluates the macroeconomic impacts of the 9/11 attack on U.S. real GDP growth and the unemployment rate by examining how forecasts of these variables were revised after the attack occurred. By this approach, the immediate impact of the 9/11 attack was to reduce real GDP growth in 2001 by 0.5%, and to increase the unemployment rate by 0.11% (reduce employment by 598,000 jobs.) Results are robust to controlling for how economic forecasts typically change over the course of the forecasting horizon in normal and recession years. Impacts on 2002 outcomes are more difficult to identify. Forecasted real GDP growth in 2002 fell dramatically immediately after the 9/11 attack but then recovered fully. The recovery in the forecast could have been due to unforeseen responses that mitigated the impact of the attack, but it also could have been due to erroneous forecasting and a poor understanding of how the attack would impact the economy. The forecasted unemployment rate in 2002 rose sharply immediately after the 9/11 attack, but unlike real GDP growth, it never subsequently returned to a pre-9/11 level. Forecasters seemed to have anticipated the 2002 "jobless recovery" early in that year.