The economic consequences of violence against civilians: Developing economic resilience to violence

The economic literature indicates the substantial negative economic consequences of violent attacks on civilians by individuals or groups to advance political, religious, or ideological aims. However, research in psychology indicates people’s remarkable ability to develop psycho-physiological resilience following such attacks. This study explores whether this resilience might be expressed in the economic activity of people and their governments. Using the case of the ongoing Israeli-Palestinian conflict, we reveal that the previously documented adverse macroeconomic and capital market consequences of violence against civilians in Israel no longer exist in the past two decades. The evidence suggests that increased consumer confidence in the face of violence, together with the rapid growth in the Israeli economy, has reached a point where the violence poses an insignificant economic risk. We contribute to the literature by providing novel evidence about an economy outgrowing the negative externalities of violence against civilians. Given Israel’s well-developed economy and free markets, the findings of this study have broader implications for other developed countries.