A LONG-RUN ANALYSIS OF THE TERRORIST ATTACKS OF SEPTEMBER 11TH: REALLOCATIONS OF RESOURCES IN THE UNITED STATES ECONOMY

Onur MUMCU (Koç University)
Andy GUZOWSKI (University of Michigan)

The terrorist events of September 11th, 2001 have caused and will continue to cause significant reallocations within the United States economy. More resources are going to be allocated to protect Americans from future terrorist attacks. This increase in spending is primarily on homeland defense and on protecting Americans by fighting terrorists outside of the US borders through the use of our military forces. In this paper, we construct a two-sector of endogenous growth model in the US economy. One sector is the security sector, which embraces the military and private security sector, while the other sector is combination of the rest of the sectors in the US economy. This paper analyzes how the reallocations of capital and labor force to the security sector and the change in technological growth will affect the economy. It also focuses on the measurement problem of the GDP, and the relation between the GDP and the welfare of the individuals in the economy. Finally, we will show what impact 9/11 will have on the GDP growth, welfare, and productivity of the United States economy in the long run.