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Terrorist attacks foster inability and may affect productivity over the short and long-term. Do you think the september 11, 2001, terrorist attacks on the World Trade Center and the Pentagon affected short-and/or long-term productivity in the United States? Explain your response and show any movements in the PPF.

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Joshua Stredder
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28 Sep 2019

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Related questions

Economist claim that terrorist attacks can be viewed as another type of trade barrier. Do you agree? Why?

After reading The African Business Journal article about Boko Haram in, "Boko Haram and its impact on the Nigerian Economy." Do you think this terrorist organization and it's action in Nigeria is having an impact on Nigeria's import/export industry (trade)?

If so, what type of affect do you think the terror group has on Nigeria's import/export business?

Boko Haram and its Impact on the Nigerian

Economy

By Angus Gillespie

Despite emerging from the murky shadows within Nigeria just a dozen years ago,

Boko Haram has quickly earned itself an infamous reputation for being one of the

most callous and violent radical Islamist groups in African history. In fact, it’s

already been tagged a terrorist group by western countries such as the United

States. Over the past 12 to 15 months, Boko Haram has unleashed a massive

wave of violence, fear and chaos throughout the northern African country – so

much so, that it’s know seen by many as having a noticeable impact on the way

the country operates, and by extension, is hindering its economic well being to a

widening degree.

Founded in 2002, Boko Haram is an ultra extremist Islamic cult focusing primarily

on the edict that Western education is forbidden. Military operations were

launched in 2009 to support their cause in creating an independent Islamic state.

It also has roots that can be traced to the northern part of Cameroon and parts of

Niger. The Boko Haram leadership has international connections to Al-Qaeda.

Suspected Boko Haram militants have killed dozens of Nigerians in recent weeks

and there is no sign of the violence abating. In one attack, gunmen disguised as

soldiers fired on a crowd in a church compound. The radical sect is known for

attacking churches, schools, and police stations. Tourists are also considered fair

game. Violence linked to the Boko Haram insurgency has resulted in an

estimated 12,000 killings since 2002, although that figure has gone up

considerably since 2009 when the group began to heavily arm itself as a militia.

Making matters worse for the Nigerian government of Goodluck Jonathan is that

some of the attacks come amidst reports some army generals have been aiding

the rebel militants, on the belief that a national coup is going to take place.

Nigerian media sources have reported that as many as 10 generals and five

other senior military officers have already been tried before the courts for

supplying arms and information to Boko Haram. However, at least one Nigerian

military spokesman called the reports “falsehoods”.

This contradicted Interior Minister Abba Moro said it was “good news” that the

army had identified soldiers who were undermining the fight against the

insurgents, and that it sent a strong message to other serving officers.

Boko Haram has waged an increasingly bloody insurgency since 2009 in an

attempt to create an Islamic state in Nigeria.

One small town that has been hard hit by the violence is Attagara, where the

village church came under attack leaving at least 20 people dead.

Nigeria’s government has been facing mounting pressure both at home and

abroad to do more to tackle the group and bring about the release of more than

300 schoolgirls kidnapped by the group on April 15.

President Jonathan originally declared a state of emergency in May of last year in

the three northern states where Boko Haram is, and has been, most active –

Borno, Adamawa and Yobe.

Boko Haram retaliated by stepping up its bombing campaign in cities and

launching mass attacks on small towns and villages.

Media correspondents in those regions say that since the infamous kidnapping of

more than 300 schoolgirls, the attacks have become an almost daily occurrence.

The campaign to free the girls that began in their home village has now gone

global, with the U.S., Canadian and British governments offering support to help

with the rescue. It’s believed about 55 girls have managed to escape their

captors since being taken hostage in April. The government has ruled out

swapping the girls for detained insurgents associated with Boko Haram.

President Jonathan has promised to address the poverty that helps fuel the

uprising — but only once the insurgency is put down. The World Bank says twothirds

of 170 million Nigerians struggle in poverty in Africa’s biggest oil producer.

Despite the fact there is so much poverty and lack of widespread education,

Nigeria remains Africa’s largest economy – thanks in large part to the massive oil

reserves that are often exploited by international corporations. That said, to put

things into perspective, only about 3% of the world’s oil supply is found in the

country. More recent successful business sectors have included the likes of

banking, telecommunications and a burgeoning film industry. Agriculture and

services have also been two traditional economic staples for the country,

although neither has shown much in the way of expansion over the past 10 to 20

years. To its credit, the country has also been diversifying the core economic

drivers away from energy and agriculture. The nation’s GDP is now $490 billion,

just shy of the economies of countries like Norway and Sweden.

When an organization managed to get the president of the country to declare a

state of emergency, it stands to reason it has the ability to unwieldy a

tremendous amount of damage on the country, be it through violence or

economic crippling.

Economic Impact

Since Boko Haram emerged from the shadows about four years ago, once armed

militarily, one of the first obvious economic concerns was the almost immediate

drop in foreign direct investment (FDI), with the concern being whether the

government had the wherewithal to deal with the serious insurrection and stave

off the many decades of political instability the country has faced. According to

the World Investment Report (WIR) 2013, FDI flows into Nigeria dropped by 21%

in just one year — from $8.9 billion in 2011 to $7 billion in 2012. The loss of $1.9

billion for a country in desperate need of money – such as Nigeria – was a

staggering blow.

The monumental decline in FDI over such a short period of time sent ripple

effects throughout the international community, creating a negative domino

effect. It’s a rock heading downhill that continues to gain momentum, and it will

be up to Jonathan and his government not only to slow it down, but to stop it

altogether, or it will begin all over again.

FDI into Nigeria has a direct impact on trade, while also ensuring progression of

economic development to the south. FDI inflow also supplements the available

domestic capital by stimulating the productivity of domestic investments.

Someone troublesome is the high codependency ratio between the inflow of FDI,

the Nigerian oil sector, and the country’s GDP.

A scientific study found that a unit increase in FDI into the Nigerian oil sector will

increase the country’s GDP by approximately 16 units. This shows that the

Nigerian oil and gas sector, which is the mainstay of the economy, has a high

rate of exposure to foreign direct investment.

Between the lack of jobs, and the increasing violence with the likes of terrorist

groups such as Boko Harm, there has been a mass movement of Nigerian

citizens looking to settle in areas not impacted by the violence. The trouble is

this: the areas not affected by the violence are most often areas that have

nothing in terms of sustainable economic activity that would allow a person or a

family to survive. Living in the dangerous regions is where there’s hope for

employment.

The rush to escape from the northern part of the country that has been hard hit is

already affecting the profitability of businesses in the region. It’s no reached the

point where accredited banks have begun closing down some branches due to a

huge decrease of economic activity. On top of that, a number of employees at

these businesses are demanding to be reassigned to areas that are less volatile.

As noted many times before, a lot of the current problems with terrorist uprisings

can easily be pinpointed to a lack of government leadership due to the constant

political insecurity, and especially so in the northern region.

Once the banks and other businesses decide to pack up and move elsewhere, it

leaves the region in a state of economic depletion, and one that won’t easily be

regained. It’s always quicker destroying something than it is building it up. The

people of Nigeria are hoping President Jonathan’s government takes drastic

action to bring about more stability in the country and soon. Or, it will be a long

road to recovery for a nation that can already ill afford this type of economic

setback.

More than $21 billion of foreign direct investment poured into Nigeria in 2013, up

28% from the year before. The country does not want to see that slide backwards

due to political instability and the onset of widespread violence. The country has

attracted the most foreign direct investment in sub-Saharan Africa since 2007,

according to Ernst & Young. But all of that could be quickly eroded if the violence

is not snuffed out.

Many financial analysts seem to be of the opinion that the impact on foreign

investment will largely be determined by geography. As example, investors may

pull out funding from manufacturing and infrastructure investments in northern

Nigeria, which has been ravaged by violence. But the resource rich southern

region has been spared from violence to this point. This could be one of the

factors as to why Nigeria’s stock market has been seemingly unaffected by all the

recent turmoil. The benchmark equity index has only declined about 1% since the

kidnappings in mid April; so for all intents and purposes, it has been business as

usual.

So just how bad is it in Nigeria? It is perhaps best summed up in a balanced

report by an analyst with Ernst & Young.

“Nigeria epitomizes this almost bipolar view of Africa,” says Henry Egbiki, West

Africa regional leader at Ernst & Young. “For many of us already doing business

on the continent it is an exciting, dynamic, high octane growth market; for some

others, often on the outside looking in, it seems chaotic, unstable, and uncertain.

The reality is obviously less cut and dried than either of these extremes.”

The next 12 to 18 months will be critical for the government and how it responds

to the upswing in violent outbreaks by radical groups such as Boko

Haram. Humanitarian groups and countries will be looking on from a human

rights point of view, but you can also bet that the international investment

community will be keeping a close watch as well.

Ch 7

2) Suppose that the U.S. noninstitutional adult population is 230 million and the labor force participation rate is 67 percent.

a. What would be the size of the U.S. labor force?

b. If 85 million adults are not working, what is the unemployment rate?

3) Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment:

a. A UPS employee who was hired for the Christmas season is laid off after Christmas

b. A worker is laid off due to reduced aggregate demand in the economy.

c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular.

d. A new college graduate is looking for employment.

5) When the economy is at full employment, is the unemployment rate at zero percent? Why or why not? How would a more generous unemployment insurance system affect the full employment figure?

7) Here are some recent data on the U.S. consumer price index:

YEAR CPI YEAR CPI YEAR CPI

1992 140.3 1999 166.6 2006 201.6

1993 144.5 2000 172.2 2007 207.3

1994 148.2 2001 177.1 2008 215.3

1995 152.4 2002 179.9 2009 214.5

1996 156.9 2003 184.0 2010 218.1

1997 160.5 2004 188.9 2011 224.9

1998 163.0 2005 195.3 2012 229.6

Compute the inflation rate for each year 1993 – 2012 and determine which were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

Ch 8

1) How do we measure labor productivity? How do changes in labor productivity affect the U.S. standard of living?

5) Supposed that two nation start out in 2013 with identical levels of output per work hour – say, $100 per hour. In the first nation, labor productivity grows by 1 percent per year. In the second, it grows by 2 percent per year. Use a calculate or spreadsheet to determine how much output per hour each nation will be producing 20 years later, assuming that labor productivity growth rates do not change. The, determine how much each will be producing per hour 100 years later. What do your results tell you about the effect of small differences in productivity growth rates?

7) What are some examples, other than those given in the chapter of technological change that has caused unemployment? And what are some examples of new technologies that have created jobs? How do you think you might measure the net impact of technological change on overall employment and GDP in the United States?

Ch 7

2) Suppose that the U.S. noninstitutional adult population is 230 million and the labor force participation rate is 67 percent.

a. What would be the size of the U.S. labor force?

b. If 85 million adults are not working, what is the unemployment rate?

3) Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment:

a. A UPS employee who was hired for the Christmas season is laid off after Christmas

b. A worker is laid off due to reduced aggregate demand in the economy.

c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular.

d. A new college graduate is looking for employment.

5) When the economy is at full employment, is the unemployment rate at zero percent? Why or why not? How would a more generous unemployment insurance system affect the full employment figure?

7) Here are some recent data on the U.S. consumer price index:

YEAR CPI YEAR CPI YEAR CPI

1992 140.3 1999 166.6 2006 201.6

1993 144.5 2000 172.2 2007 207.3

1994 148.2 2001 177.1 2008 215.3

1995 152.4 2002 179.9 2009 214.5

1996 156.9 2003 184.0 2010 218.1

1997 160.5 2004 188.9 2011 224.9

1998 163.0 2005 195.3 2012 229.6

Compute the inflation rate for each year 1993 – 2012 and determine which were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

Ch 8

1) How do we measure labor productivity? How do changes in labor productivity affect the U.S. standard of living?

5) Supposed that two nation start out in 2013 with identical levels of output per work hour – say, $100 per hour. In the first nation, labor productivity grows by 1 percent per year. In the second, it grows by 2 percent per year. Use a calculate or spreadsheet to determine how much output per hour each nation will be producing 20 years later, assuming that labor productivity growth rates do not change. The, determine how much each will be producing per hour 100 years later. What do your results tell you about the effect of small differences in productivity growth rates?

7) What are some examples, other than those given in the chapter of technological change that has caused unemployment? And what are some examples of new technologies that have created jobs? How do you think you might measure the net impact of technological change on overall employment and GDP in the United States?

After reading the February 19th, 2009 Economist article, "Turning their backs on the world," do you believe it is wise for world governments to shy away from globalization during a period of economic crisis?

Globalisation

Turning their backs on the world

Feb 19th 2009 From The Economist print edition

The integration of the world economy is in retreat on almost every front

Illustration by Claudio Munoz

THE economic meltdown has popularised a new term: deglobalisation. Some critics of capitalism seem happy about it—like Walden Bello, a Philippine economist, who can perhaps claim to have coined the word with his book, "Deglobalisation, Ideas for a New World Economy". Britain’s prime minister, Gordon Brown, is among those who fear the results will be bad.

But is globalisation really ending? The world’s economies are certainly slowing fast. And the speed and scale of this recession are raising doubts about the assumptions that had underpinned the drive to integrate world markets. At the end of 2008 the IMF said the world economy would grow 2.2% in 2009, less than half the rate in 2007. Now it thinks growth will be just 0.5% this year, the lowest for 60 years. Even that may be optimistic; in the last quarter of 2008, some economies shrank at annualised rates of over 10%.

Nobody ever said globalisation had ended economic ups and downs, but this feels different: prima facie evidence of big problems at least, and possibly of the failure of globalisation to deliver many of its advertised benefits, especially to the poor. True, economic slowdown is not the same as deglobalisation. And the slowdown has yet to affect one thing. For years, poor countries have been growing faster than rich ones; so far, they still are. The gap between real GDP growth in emerging markets and in rich countries widened from nothing in 1991 to about five points in 2007—

and, says the IMF, it will stay at 5.3 points in 2008 and 2009. Helping poorer countries catch up has long been among the benefits touted for globalisation.

And yet the process is going into reverse. Globalisation means the global integration of the movement of goods, capital and jobs. Each of these processes is now in trouble. World trade has plunged. As recently as the first half of 2008, boosted by rising commodity prices and a falling dollar, trade was growing at an annualised 20% in dollar terms. In the second half of 2008, as commodities sagged and the dollar rose, growth slowed fast; by September, says the IMF, it was in reverse. In December, says the International Air Transport Association, air-cargo traffic (responsible for over a third of the value of the world’s traded goods) was down 23% on December 2007—almost double the fall in the year up to the end of September 2001, a result affected by the 9/11 terror attacks.

The downturn has been sharpest in countries that opened up most to world trade, especially East Asia’s tigers. Singapore’s exports are 186% of GDP; its economy shrank at an annualised rate of 17% in the last three months of 2008. Taiwan’s exports are over 60% of GDP; and its economy may fall as much as 11% this year. The downturn has also hurt rich countries that specialise in staid old-fashioned manufacturing—supposedly a safer activity than the reckless delusions of finance. On average, says the IMF, rich countries will contract 2% this year. But Germany and Japan, big exporters of capital goods, cars and electronics, will do worse, their economies shrinking by 2.5% and 2.6% respectively. In the last quarter their economies contracted alarmingly, falling at an annualised rate of 8% in Germany and by 13%—the worst since 1974—in Japan.

Small countries which went into businesses that grew in globalisation’s wake, like tourism, are also suffering. The World Tourism Organisation says international tourist arrivals fell 1% in the second half of 2008, which may not sound bad, but compares with growth of more than 5% a year for the previous four years. In the Caribbean, visitors may fall by a third this season; in some islands hotels are half empty, flights are being cancelled and national budgets, reliant on tourism, are strained.

In contrast, the biggest emerging markets are doing less badly so far. In India, where exports are around 15% of GDP, the government recently said growth in the year to April 2009 would be 7.1%; most forecasters put growth for the 2009 calendar year lower, but still about 5%. In Brazil the economy has been harder hit by falling commodity prices and declining exports. Most economists still think output grew a bit in the year to the fourth quarter, and put growth for 2009 at 1.5% to 2%. China was still growing by 6.8% in the year to the fourth quarter, though like Brazil it is probably stagnating. Chinese exports fell 18% and imports 43% in the year to January. All three countries have large domestic markets and relatively stable banking systems, which have not been liberalised.

The gap between toothless tigers and friskier BICs (ie, BRICs minus Russia, a special case because of oil) raises questions not so much about globalisation as a whole—after all, Brazil, India and China have been beneficiaries—as about particular aspects. Can one be too dependent on trade? How far should one liberalise banking? Is there a trade-off between taking advantage of good times and providing shock absorbers for bad ones?

Emerging markets’ trade problems have been worsened by shifts in capital flows, globalisation’s second big plank. According to the World Bank, net private debt and equity flows to developing countries will fall from $1 trillion in 2007 to $530 billion in 2009, or from 7.7% to 3% of those countries’ GDPs. The Institute for International Finance sees an even steeper fall; it says that this year banks will extract more from emerging markets in debt repayments than they inject in new loans. Bond markets in those countries collapsed in the last quarter of 2008, doing less than $5 billion of business; in the second quarter, they had issued about $50 billion of bonds.

As with trade, financial deglobalisation is hitting countries in a variety of ways. In this case, East Asia has been less affected because most countries there are net creditors. But eastern Europe and Russia have been hammered because local banks went on a foreign-borrowing binge, foreign banks piled into their markets (and piled out again) and because some countries lacked insurance policies against tough times. Although many big emerging markets have built up foreign-exchange reserves and cut their external debts, in eastern Europe reserves have been flat, external debts have risen and current- account deficits have grown considerably in the past decade. In these countries, the reversal of globalisation has exacerbated problems that were building up anyway.

People in emerging markets have mixed feelings about financial liberalisation and may not regret its reversal. But foreign direct investment (FDI) is different. Most people welcome new factories and new jobs. FDI is also one of the commonest routes by which skills and technology are transferred from rich to poor countries.

This, too, is falling. The United Nations Conference on Trade and Development (UNCTAD) says worldwide FDI inflows shrank 21% in 2008 to $1.4 trillion. The World Association of Investment Promotion Agencies says FDI will contract by a further 12-15% this year.

In contrast to trade, the investment impact of the global downturn has so far been hardest on the countries where the woes began: rich ones. They have seen FDI falls of one-third on average and by half or more in Britain, Italy and Germany. Finland and Ireland have seen net outflows. FDI flows to developing countries were still growing in 2008, albeit by only 4%, after a rise of 21% in 2007. Flows to big South American countries were up by about a fifth; those to India more than doubled, though they may ebb as GDP falters.

The third of the three main aspects of globalisation—jobs—is following the other two, with a lag. The International Labour Organisation forecasts that unemployment worldwide will rise by around 30m above 2007’s level in 2009. Most of that rise will be the result of recession, not deglobalisation, but some will be attributable to the fall in trade (exporting companies will lay off workers) and some to declining investment (if expansion plans are cut, new jobs will not be created).

Deglobalisation will have a dire impact on migrants. In the past decade, more people have been moving voluntarily than ever before; now, some are going home. Those who provided labour for the housing boom in America (notably Latinos), Ireland (Poles) and China (rural Chinese going to cities on the eastern seaboard) have been among the first to be laid off. In Spain newly jobless builders are competing with migrants there for jobs picking fruit.

This will surely have an effect on the flow of remittances from rich countries to poor ones, although it has so far (see article) been quite resilient. In any case, economies that absorbed large numbers of foreign workers may take fewer. Some of the millions of South Asians who work in the Gulf, or the young Africans who flock to South Africa, or the Central Asians who work in Russia, may have to stay at home.

Yet for all the economic pain, the social and political fallout from deglobalisation has not yet been severe. Protests may still come. Or maybe national governments are absorbing most of the ire. In December, Greece saw riots after a police bullet killed a teenager. In France, unions brought over 1m people onto the streets for a one-day strike, and a riot in Latvia over economic policy ended in more than 100 arrests. But only in Britain, where workers have picketed refineries and power stations over the hiring of foreigners, has protest had a very anti-global tone.

This lag may be explained by residual support for globalisation, especially in emerging markets. A poll in 2007 by the Pew Global Attitudes Project found that majorities in 47 countries saw international trade as good for them; majorities in 41 out of 46 welcomed multinational firms; in 39 out of 47, most felt better off with a free market. In more than half the countries where changes could be tracked, support for free markets was rising.

When consensus wobbles

But is that still true? Last summer, on the eve of the meltdown, European Union pollsters reported that two-thirds of EU citizens saw globalisation as profitable only for large firms, not citizens. In 2002, according to the Pew poll, 78% of Americans thought foreign trade helped the country; by 2007 it was only 59%. A CNN poll in July 2008 showed that, for the first time, a small majority of Americans saw trade as a threat, not an opportunity.

Of the few worldwide polls to have been completed since then, one by Edelman for the World Economic Forum found that 62% of respondents in 20 countries said they trusted companies less or a lot less now. Manifestly, popular opinion backs more state regulation.

So far, this has mostly taken the form of pouring public money into banks and selected industries, notably cars. Last week Barack Obama set out plans for another vast bank rescue, and the French government promised €6 billion ($7.8 billion) in preferential loans to Renault and Peugeot-Citroën in return for pledges that no car factories would be closed in France.

There has been somewhat less evidence of trade protectionism. India has raised some steel tariffs. The EU has reintroduced export subsidies for some dairy products. Russia has raised import duties on vehicles. But there has also been movement the other way. The American Senate softened the "Buy America" provisions of the stimulus bill. Mexico said that by 2012 it would cut tariffs on thousands of kinds of manufacture. And some countries have sought a safe harbour, rather than embracing pure nationalism. East Europeans are even keener on the shelter of the euro; Iceland has applied to the EU; the Irish are more likely than they were to vote for the EU’s Lisbon treaty.

Despite the downturn, the nations of the world have not shunned globalisation. It has been protected by the belief of firms in the efficiency of global supply chains. But like any chain, these are only as strong as their weakest link. A danger point will come if firms decide that this way of organising production has had its day.

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