During the past decade, terrorist attacks in New York, Washington, London, and other major cities have been popularly regarded as having profound impacts on the security and confidence of urban residents. The loss of life and damage to structures that transforms the urban landscape may similarly transform the structure of the urban economy. For example, many of the companies that resided in the World Trade Center were forced to relocate to midtown and the outer boroughs or New Jersey. Still others—no one knows for sure how many—have disappeared altogether. The World Trade Center housed 700 companies employing some 50,000 people. What happened to these firms and workers? More generally, what happens to economic agents in the aftermath of a terrorist attack?
Fortunately, terrorist attacks of the magnitude of those that struck the United States on September 11, 2001, are rare and extraordinary events. In some cities, however, the terrorist attacks can be unrelenting, providing a constant threat of danger for years on end. These events, and the use of these tactics, could have significant impacts on the economic vitality of an urban area and the form of urban development. In this paper we address this issue by cataloging a large sample of terrorist attacks in major cities in the past two decades and linking these data to a new data set providing information on urban land use in a globally representative sample of cities. In doing so, [End Page 257] we examine whether events like September 11 and much more frequent, smaller attacks influence the decisions to build and rebuild cities.
This issue has been addressed extensively in the news media. Some have raised doubts about the viability of open cities with easily accessible public transportation systems. Some fear that organizations may disrupt economic activity by creating a "climate of terror." Stephen Ambrose of the Wall Street Journal has suggested that cities should reorganize by employing existing technology in electronic communication to limit population density virtually. Others such as Admiral William Crowe have advised companies to move away from dense urban centers and toward low-profile locations. Seager, Moore, and Long, writing in the Guardian, even go so far as to provide estimates on how much output was reduced in London and the United Kingdom following the July 2005 attacks. They estimate that London's output fell 0.6 percent and national output fell 0.1 percent.1 Although, in the context of the national economy, these numbers may seem modest, when concentrated in a single urban area or part of the city, the impact of a sustained pattern of attacks over a longer horizon would soon disrupt the economy of any urban center.
Other experts expect little or no impact. Much of the empirical economic research has concurred with this group of commentators. Harrigan and Martin provide one of the first papers analyzing the impact of terrorism on urban structure.2 They develop a model based on a new economic geography model of the type used by Krugman, in which wage variability across firms may be smoothed through worker relocation to market centers.3
Harrigan and Martin employ both a labor pooling and core-periphery model to examine the impact of terrorist attacks on urban centers. In both cases, they find that a one-time attack has no significant long-run impact on relocation. However, an ongoing threat can act as a tax on a particular region. In the core-periphery model, an ongoing risk of terrorism causes workers to leave the large urban centers and reduces firm agglomeration. In summary, they find that one-time terrorist events are unlikely to create significant changes in urbanization, whereas repeated attacks can create a climate of terror, leading to lower rates of urbanization. [End Page 258]
Glaeser and Shapiro employ historical data to analyze the impact of war on cities...