Terrorism is one of the main challenges to security and peace. It has become a global problem, and represents a daily menace in many developed and developing countries. Tens of real or hypothetical terror-plot threats and thousands of individuals are under tight surveillance. The human and material costs of terrorism are tremendous. In 2006 alone, there were 6,425 terrorist incidents, with 11,886 fatalities – about 75 percent of them took place in the Middle East/Persian Gulf region. The 1990s saw the emergence of religious factors behind terrorism, and a growing recourse to suicide attacks, which exacerbates tensions between civilizations. In particular, religious terrorism opposes the West to the Muslim world, undermines the integration of foreign communities in immigration countries, and stimulates xenophobia in many places. It may lead to international conflicts, and de facto it delays pacification in specific regions. In the long term, terrorism could reduce the scope for political, social, and economic progress in developing countries, enlarge the North–South divide in terms of wealth and income, and weaken democratic rules and human rights in the richer countries.

This chapter addresses terrorism with a focus on selected economic and policy issues, including a tentative cost–benefit analysis of antiterrorism based on recent quantitative findings. Considering the vast amount of literature on terrorism published after 9/11, a selection of material had to be made, partly relying on personal preferences.