Terrorism And Its Impact On Economic Growth And Technological Innovation

Technological Forecasting & Social Change 74 (2007) 129 – 138

Terrorism and its impact on economic growth and technological innovation Winston T.H. Koh * School of Economics and Social Sciences, Singapore Management University, 90 Stamford Road, S178903, Singapore Received 15 April 2005; received in revised form 12 January 2006; accepted 17 January 2006

Abstract Recent terrorist acts, in particular the 9-11 attacks in 2001, have created disruptions in the global economy. The short-term impact had been felt in the global tourism, airline industries, as well as the financial markets. While the global economy has recovered and is adjusting to the new global realities, the longer-term impact of heightened security risk across the world can be felt in the form of higher risk premiums in asset markets, as well as a shift of resources towards dealing with terrorism. Just as World War II had accelerated the development of nuclear energy as well as a major contributing factor in the genesis of Silicon Valley, the current war against terrorism will affect both the pace and trajectory of technology trends, as efforts are focused on developing technologies to combat terrorism. In this paper, we review the effects of the current war on terrorism in terms of its impact on the economy, the allocation of resources to R&D, and the trajectory of future R&D. D 2006 Elsevier Inc. All rights reserved. Keywords: Terrorism; R&D; Technology; Innovation; Economic growth

1. Introduction Global Terrorism has become a harsh reality in today’s society. As noted by Sandler and Enders [1], terrorism is the premeditated use, or threat of use, of extranormal violence to obtain a political objective through intimidation or fear directed at a large audience. There is the presence of a political objective that the terrorist acts or campaigns are designed to achieve. Another crucial ingredient is the use of extreme violence or brutality to capture news headlines. As noted by Anderton and Carter [2], terrorist * Tel.: +65 68280853; fax: +65 68280833. E-mail address: [email protected]. 0040-1625/$ - see front matter D 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.techfore.2006.01.005

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activities are rich in activities because they are design to inflict psychological effects that extend beyond the immediate victims. Terrorist threats and actions have come in many forms, including hijacking of commercial flights in the 1970s, the 1983 suicide attack on US and French contingents of the multinational peacekeeping force in Beirut, the 1993 attack on the World Trade Center, the 1993 bombing in the City of London, the 1995 Sarin gas attack in the Tokyo metro and the 1996 bombing of a US military compound in Saudi Arabia, which put terrorism at the forefront of the subsequent G7 summit. Terrorist attacks on the US Embassies in Kenya and Tanzania have been increasingly more destructive and claimed a growing number of victims (see Lake [3]). The horrific scale of destruction in the 9-11 attacks and the boldness of the terrorists in carrying out the attack ushered in a period of greater global uncertainty on various fronts: political, economic, military and technological. Like the attack on Pearl Harbor on December 7, 1941, the terrorist attacks of September 11, 2001, and subsequently in the Indonesia island of Bali, Madrid, and most recently, in London in July 2005, served as a global wake-up call and focused attention on national vulnerability. The war on terrorism will become an inescapable part of our lives for some time to come. Although the immediate economic impact of the 9-11 attacks was devastating, consumer confidence and the stock markets recovered quickly. However, there are three important consequences of the 9-11 attacks that will be long lasting: (a) insurance coverage for terrorism-related activities will be more difficult to obtain and insurance premiums have already increased considerably; (b) pressure is mounting to tighten security at the national borders to better screen the flows of merchandise crossing the borders, and (c) public spending on security and military operations is on the rise. In the war against terrorism, the aim of governments is to reduce the incidence of terrorism by using counter-force, in particular deterrence policy, imposing negative sanctions on actual and presumptive terrorists (Frey and Luechinger [4]). In many countries, governments in many countries have begun to take a bigger role in the economy. However, this comes with an economic trade-off in the form of potentially crowding out R&D investments, slower economic growth and an increase in emphasis on technological developments focusing on military applications. Already, public spending on homeland security and defense has already been raised in many countries. There is also an increase in private sector spending to improve the security of business infrastructure, operations and information. In Europe, for instance, the escalation in terrorism has prompted the European governments to increase cooperation to address the threats and to improve the European Union’s relations with and engagement in the Balkans, the Middle and the Mediterranean area (see Wouters and Ruys [5]). In the aftermath of the 9-11 attacks, there is the concern that the flow of investment from major industrial countries to less developed countries may slow down, as companies evaluate the country risk profiles of overseas locations. Moreover, the severe tightening of border controls following the 9-11 attacks resulted in long waiting times that disrupted the operations of manufacturing companies. Already, there is tighter inspection of shipping containers because of the concerns over terrorism-related trade sabotage. Besides the impact on trade and investment, terrorism-related concerns could also directly affect the rate of innovation. With the concerns over potential economic damage caused by terrorism, countries are now spending more financial resources to improve homeland defense and security. The increased spending on defense and security may crowd out more economically productive investments and funding for R&D research. This may come about directly as governmental budgets are diverted to fight terrorism, or indirectly as increased demand for capital exerts upward pressure on interest rates. Rising interest rates will negatively affect the investment in R&D activities and impact the rate of innovation.

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In this paper, we review the effects of the current war on terrorism, in terms of its impact on the economy, the allocation of resources to R&D, and the trajectory of future R&D. The paper is structured as follows. Section 2 reviews the economic consequences, while Section 3 discusses the impact on technological innovation. Section 4 concludes the paper with a discussion of possible future scenarios.

2. Economic consequences of terrorism The prevention of large-scale economic damage and human casualty is the primary objective in the war on terrorism. In the case of the 9-11 attacks, they inflicted casualties and substantial material damages on a far greater scale than any terrorist aggression in recent history. The physical damage of the 9-11 attacks was tremendous. Whole portions of New York’s financial infrastructure were destroyed or disabled. Lower Manhattan lost approximately 30% of its office space and scores of businesses disappeared. The destruction of physical assets was estimated to amount to $14 billion for private businesses, $1.5 billion for State and local government enterprises and $0.7 billion for Federal government. Close to 200 000 jobs were destroyed or relocated out of New York City, at least temporarily. Rescue, cleanup and related costs have been estimated to amount to at least $11 billion (see Lenain et al. [6]). For commercial property, casualty insurers, the estimated losses arising from the 9-11 attacks totaled US$40 billion (see Brown et al. [7]). The short-term impact includes the disruptions to the global services, airline industry, tourism and hotel industries. The dampening of consumer and investor confidence and the accompanying reassessment of operational and security risks led to a sharp withdrawal from the capital markets. The shrinkage of coverage for terrorism-related risks left many businesses dangerously exposed. Fears of further terrorist acts impacted the global asset markets in late 2001 and into 2002. In terms of its economic impact, the 9-11 attacks in 2001 exacerbated the weakness already seen in the global economy in 2001. Before the attacks, the recession in the United States had caused unemployment to increase across the world, as global aggregate demand fell on the back of weakness in the U.S. economy. In the aftermath of the 9-11 attacks, consumer and business surveys showed falls in the overall confidence measures in the United States and in other countries that were similar in magnitude to those observed in the wake of the Iraqi invasion of Kuwait in 1990. Besides the immediate infrastructural and economic damage, terrorist attacks could create longerlasting effects in other aspects of society. For instance, another major terrorist attack in the future would damage the trust in the government’s capacity to protect the country. The displacement of the surviving population to non-contaminated areas could create the need for new housing, with the cost of reconstruction falling on the government. Over the long term, further terrorism attacks in urban areas will sharply reduce the readiness of persons and businesses to agglomerate in metropolitan areas. As the population disseminate to less populated areas away from the cities, this may have a negative impact on innovation and productivity growth. 2.1. Slower pace of globalization Historically, times of war and economic distress increase the likelihood that countries will pull away from market economies. If the United States or any other country is hit by more big terrorist attacks, the danger is that countries may retreat from globalization, and guide an increasing share of technological

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development to the needs of national security. In fact, in the current environment, many countries may be comfortable to sacrifice some long-term growth in exchange for more military and economic security. Another area where countries are searching for a new balance is the degree of openness between the economy and the rest of the world. While free trade and open immigration were widely practiced by countries in the 1990s, the concerns over the infiltration of terrorist cell groups have led countries to implement more stringent immigration policies and tighter border controls. 2.2. Increased military spending Following the 9-11 attacks, there is increased defense spending in the United States and most other major countries. According to a study by the Stockholm International Peace Research Institute, military spending worldwide in 2003 increased by about 11% in real terms, compared with the figures in 2002, which saw a 6.5% over 2001 (Source: Skons et al. [8]). Between 2001 and 2002, global military spending increased by 18% in real terms, to reach US$956 billion in 2003. The main reason for the increase in world military spending is the massive increase in the United States, which accounts for almost half of the global total. The increase in military spending actually started before the recent terrorist attacks. Global military expenditure reached a low point in 1998 and increased subsequently. Most NATO countries had reduced military spending since the 1980s. In the United States, defense spending dropped to 3% of GDP in 2000, well below the peak of over 6% of GDP at the climax of the Cold War build-up in the mid-1980s. The proposed increase of national defense and homeland security outlays in the United States would keep spending below 4% of GDP, i.e. below the levels recorded until the mid-1990s. In the United States, defense spending rose sharply as the protection of the United States homeland became the top priorities. Prior to the 9-11 attacks, the collapse of the USSR shifted attention away from the prospect of a global war, as there was no longer an enemy that possesses the same level of technological capacity. Attention gradually turned to regional conflicts in which the United States may have vested interests (see Trajtenberg [9]). During the 1990s, the United States accumulated a defense R&D stock that was 10 times larger than any other country. Big weapon systems commanded 30% of the defense R&D spending, against 13% for intelligence and anti-terrorism. And in the 1980s, almost 75% of government spending on defense R&D in the United States was directed to the development of missiles and aircraft, two of the main items in the category of bbig weapon systemsQ (see Mowery and Rosenberg [10]). In 2002, following the 9-11 attacks, the US President requested from Congress an expansion of security-related programmes in the context of the budget for the 2003 fiscal year. Additional spending of US$48 billion was proposed for national defense (an increase by 14% from the previous year). Citing commitment to harnessing the power of technologies, and investing in the next generation of technologies, to achieve three main goals for the United States–winning the war on terrorism, protecting the homeland, and strengthening the economy–the 2004 U.S. Budget provided for a US$123 billion investment in R&D, an increase of 7% from the 2003 request level. In addition, the U.S. President requested Congress for US$38 billion to boost bhomeland securityQ. This seeks to improve the preparedness of bfirst respondersQ (firemen, police, rescue workers), enhance defenses against biological attacks, secure borders and improve information sharing, and includes $8 billion for domestic defense spending. For the fiscal year 2003, President Bush has proposed in his budget additional military spending of $48 billion (about half of 1% of GDP) (see also Tobin [11]). By

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2005, the 2006 Budget provided a total of US$4.4 billion in spending on homeland security R&D, focusing on radiological and nuclear countermeasures, including the establishment of a Domestic Nuclear Detection Office, chemical countermeasures and R&D to counter portable anti-aircraft missiles [12]. 2.3. Increase in governmental involvement in economy A longer-term economic consequence of the increased focus on combating terrorism is that governments will have to play a bigger role in allocating capital. In the 1990s, when the disintegration of the Soviet Union signaled the end of the cold war between the United States and the Soviet Union, the peace dividend was felt across the world [13]. Facing no significant external dangers, there was a shift resources to the private sector. From 1990 to 2000, defense spending in the United States fell from 5.2% of gross domestic product to less than 3%, the lowest level in the postwar period. As investments shift from private business investment to defense and security-related spending, the accumulation of directly productive capacity may be crowded out. Also, R&D investments will shift increasingly toward technologies that enhance national security and away from innovations that enhance economic productivity. Will more government involvement to direct resources to anti-terrorism R&D reduce innovation? While military research may have some civilian spin offs, that is not its primary purpose, and the modus operandi is very difficult from the funding for commercial R&D. The goal of commercial R&D is to find the projects that possess the highest rate of economic return, while military spending is devoted to projects with the highest rate of security return. Occasionally these overlap, but that is the exception more than the rule. In short, the overall rate of innovation may decline. 2.4. Impact on trade flows and technological diffusion For countries that are situated close to the technological frontier, innovation and the development of new technologies is one of the prime drivers of economic growth for advanced industrial countries. However, for countries that are situated far away on the technological frontier, foreign direct investment and trade are the main mechanisms for transmitting leading edge technologies and business practices among countries. The concern here is that the war on terrorism would adversely impact trade flows, as costlier airfreight and longer processing times at customs increase the cost of trade. While there is little evidence so far to suggest that cross-border investment flows globally have slowed down in the wake of global terrorism, if the reduction in investment flows becomes significant, it could slow down the diffusion of technology and impede technological advancement as well as economic growth. Nonetheless, as national efforts are focused on fighting terrorism, it will lead to greater international collaboration on the sharing of technological developments. Increased border controls or immigration restrictions may also impede the flow of labor and technical talents. The just-in-time supply chain management system, commonly practiced nowadays for most industries, depends to a large degree on the efficiency of border crossings. The introduction of comprehensive controls at the national borders due to heightened terrorism concerns could lead to a slowdown in the movement of tradeable goods. If this becomes substantial, it could have a negative effect on economic growth and on innovation. In fact, the much publicized efforts by the U.S. government to restrict access to scientific and technical information, entry to the United States of students who might be potential terrorists, and the

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stringent background checks for applications to U.S. universities might potentially reduce the number of foreign students in science and technology, thereby impacting the capability of the future science and technology talent pool in the United States [14]. Blomberg et al. [15] conducted a study on the macroeconomic consequences of international terrorism and interactions with alternative forms of collective violence. In their analysis, performed on a panel dataset with annual observations on 177 countries from 1968 to 2000, they found that, on average, the incidence of terrorism may have an economically significant negative effect on growth, although the magnitude of the negative effect is much smaller and less persistent than that associated with external wars or internal conflict. The study also found that terrorism is associated with a redirection of economic activity away from investment spending and towards government spending. 2.5. Higher insurance premiums and operational costs Following the recent terrorist attacks, primary insurers and reinsurers have either raised their premiums, curtailed or dropped altogether coverage for terrorism-related risk. The strongest impact on the hike in insurance premiums has been felt in the aviation sector, but other sectors, including transportation, construction, tourism and energy generation have also been affected. The increase in insurance premiums is inevitable, as the global insurance industry was one of the industries directly impacted by the rise in global terrorism. For instance, the losses from the 9-11 terrorist attacks for the insurance industry (including reinsurance) are estimated at between $30 billion and $58 billion, with the main uncertainty deriving from payments on liability insurance. For companies, particularly those with large vulnerable assets such as oil and gas pipelines, electricity transmission lines, chemical plants and power stations, another consequence of the war on terrorism is that they will have to spend more resources on security, and protecting their assets. Furthermore, higher levels of inventories are put in place to avoid disruptions in supplies, thus raising operating costs. As operating costs for most businesses rise on the back of higher insurance premiums increase, and additional resources spent to boost security and prevent disruption to business operations, business profitability will be severely impacted. Tighter security requirements have also affected the cost of transporting goods by sea and air. This may reduce the level of productivity as, for instance, waiting times lengthen at airports and borders. In the case of international sea shipments, this has included notification requirements, more frequent Coast Guard inspections and tugboat escort obligations. Less obviously, public financial support to strategic industries (such as aviation) and protectionist measures could also distort competition and reduce productivity growth. Some estimates (as noted in Ref. [5], pp 5) suggest that the proposed security measures may increase the cost of trading internationally by 1 to 3 percentage points. As countries step up measures to prevent terrorist attacks, there are concerns that the flow of investment from major industrial countries to less developed countries may slow down, as companies evaluate the country risk profiles of overseas locations. If this reduction in investment flows becomes significant, it would slow down the diffusion of technology and know how to the third world, that will slow their economic growth. At the same time, as the inspection of shipping containers gets increased because of the concerns over terrorism-related trade sabotage, it could slow down trade and investment flows. If this free movement is slowed down significantly, it may well have a negative effect on economic growth and on innovation.

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3. Terrorism’s impact on R&D and innovation How will the war against global terrorism affect the trajectory of R&D and the pace of innovation? In the past, wartime tends to stimulate innovation of all kinds. Military conflict engenders innovation, and is changed by it [16]. During World War II, technologies that were developed include the radar, jet engines, radio electronics and nuclear power. As a result, World War II turned out to be a different war compared with World War I; airpower, which played a minor role in World War I, played a decisive role in winning World War II for the Allies. Spurred by the current war on terrorism, innovations in intelligence gathering and decision support, sensors, monitoring are generating greater interest. Since the 9-11 attacks, there is an increase in demand for inspection technologies to screen individuals, packages, vehicles, and containers for weapons, explosives, chemical agents, and nuclear materials. There is also demand for advanced bomb resistant waste receptacles to increase public safety as well as a variety of fully confined containment containers for safely storing, transporting, or detonating detected contraband. 3.1. New technologies in the war on terrorism Clearly, the development of the homeland security industry going forward will be shaped by the changing attitudes and perception of people towards the threat of terrorism. In the United Kingdom, a pilot scheme was announced in 2004 to launch 10,000 identity cards on a volunteer basis, incorporating biometric features. In Singapore, all passports would eventually incorporate biometric features. By scanning personal characteristics such as fingerprints and iris features onto a computer chip that can only be read by a high-tech reader, these biometric passports make it difficult to forge documents to enter a country illegally. Many countries are also spending on technology to link the land, sea and air checkpoints electronically, thereby tightening the first-line defense against the entry of terrorist elements into the their homeland. Looking into the future, new technologies that allow us to generate forward-looking intelligence would be critical in the war against terrorism. The greatest value of intelligence is to anticipate terrorist actions and to translate that information into an effective response. Improvements in technology will provide us with improved computer-based data fusion capabilities, modeling and simulation to better understand possible scenarios and responses. Advanced language translation software will be developed to better track terrorist communication as a source of intelligence. Besides intelligence, detection is another area which would spur innovations in the fight against terrorism. The future of sensors lies in biomimetics—biological and chemical sensors. For instance, technologies that are being developed include those that mimic the sniffing capabilities of a dog or the heat-seeking abilities of a viper to detect concealed bombs or weapons. In addition, technologies that allow for more accurate and timely detection of viral and bacterial pathogens will drive advancements in sensors—with the ultimate goal of combining chemical and biological threat detection into a suite of sensors. Sensors of the future will be deployed by highly mobile, reliable and affordable robotics. 3.2. Competition for R&D talents and resources Between the end of World War II and the current war on terrorism, the principal focus of technological innovation was the commercial markets. For instance, in the late 1960s, computer

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technology was being applied to offices as well as the manufacturing shopfloor. In the 1970s, the market for handheld calculators, electronic watches and clocks was driving development in the semiconductor technology. By the 1990s, it was the Internet, the cell phone, the DVD player, the PDA, and the personal computer and other commercial and consumer items that governed developments. Besides military usage, global positioning satellite systems were sold to consumers for hunting expeditions or for mapping or keeping track of the fleet of trucks for shipping and courier companies. While the war on terrorism may spur innovation, as was the case during the Second World War, there could be an opposite effect. There are concerns that the war on terrorism may draw talented engineers and scientists to work on terrorism-related initiatives, and draw a high proportion of the research talent away from the industrial sector to work on what are essentially non-economic projects. It was suggested that the huge scientific effort in the 1960s to put a man on the moon during the Cold War of the 1960s was one of the contributing causes to the decline in US competitiveness in the 1970s and 1980s, relative to Japan and other European countries. Moreover, when the Cold War was in full bloom, advanced fighter planes, better radar systems, smarter tanks and artillery were all in development in addition to the race to space. The United States was beaten in launching first orbiting satellite, but they were not going to lose the race to the moon. Some commentators have argued that the civilian spin offs of the space exploration were in fact quite modest, and in any event vastly less than those that would have been generated if the people involved had been working in private industry. Except for products aimed at the consumer electronics market–principally television–virtually all new products were produced with the military and aerospace industry customer in mind. Moreover, performing standards were set to meet the demanding requirements of these military and aerospace customers. It is feared that the current war on terrorism may result in similar effects on the United States global economy. Even if there is no crowding out effect on private sector R&D, several effects on the rate and scope of technological innovation can be discerned as attention has focused on the fight against terrorism. Firstly, the development of some types of technologies will be stimulated, or greatly speeded up as resources are invested [17]. As we discussed earlier in this section, the obvious examples are those related to surveillance, satellite imaging, security recognition systems, interception of radio and telephone signals, disaster recovery, etc. However, there is some concern although there is some commercialization potential in the technologies that are being developed in the wake of the 9-11 attacks, the spin off effect into the civilian economy may turn out to be not as much. There will be some civilian uses for these technologies (better security systems in large office buildings, and improved satellite imaging for oil exploration, for example) but much of the new technology will be highly specialized, and in any event may be kept secret to avoid tipping off potential adversaries. 3.3. Government funding of venture capital Another interesting effect of the war on terrorism is that governments are working more closely with venture capitalists since the late 1990s. A good example of such collaboration was the establishment by the CIA of In-Q-Tel in 1999 [18]. This small US$30 million fund operates in the Silicon Valley to co-invest with other venture partners in technologies (particularly information technologies) that have potential application to governmental projects, particularly in the area of

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intelligence. The fund will not be an exclusive founder of a startup but will seek to make the companies in which it is invested aware of markets for their products and technology that are parallel to their commercial applications. In other countries, such as Singapore, government recognizes the need to develop new technologies systems that respond to terrorist threats and is taking the lead to set up venture capital funding for technologies have applications to the war on terrorism. Many countries have set up similar government-funded venture funds that offer early-stage venture capital funding and introductions to capabilities that will serve to address terrorist activities.

4. The future What does the future hold? Attacks on an even broader scale than the 9-11 attacks may occur. For instance, the risk of a nuclear device bearing explosive force of 20 000 tons of TNT denoting over Manhattan is real. Such a device would destroy everything within three square miles (see Stern [19]). The whole Wall Street and financial district would be destroyed and hundreds of thousands of lives would be lost. It would leave most of the metropolitan area uninhabitable for years, and would reduce the country’s production potential substantially, with the brunt borne by the financial industry, which represents the bulk of New York City’s economy. Wall Street would be closed for a long period of time and the recovery of financial transactions would depend on the availability of back-up facilities and data duplication. There would be severe disruption to the transportation system, including the port and airports. It is not only New York that faces such as threat. Other financial centers such as London, Tokyo, and Singapore are potential targets as well. Another possible scenario is that terrorists could attempt to explode a nuclear device or release contagious viruses in a populous metropolitan area [19]. In fact, within weeks of the 9-11 attacks, lethal anthrax spores were found to have contaminated mail in the United States. There are also concerns that terrorists could use the SARS virus, avian flu virus, and even the eradicated smallpox virus for future biological terrorist acts. In light of these potential future scenarios, technology will play a far greater role in preventing future terrorist acts. On balance, the development of a number of technologies relating to surveillance and related areas will be speeded up. However, as we noted in the paper, there is also the risk that the diversion of resources to develop anti-terror technologies may slow down innovation in society as a whole, by drawing talented people from more economically productive areas, by crowding out investment dollars, and by creating a climate of intolerance that will impede innovation. That, in turn, may well play a role in reducing economic growth in the long term.

Acknowledgements Research support from Singapore Management University is gratefully acknowledged. I would like to thank the referees for their comments and suggestions, Hal Linstone for his encouragement, and my colleagues at Singapore Management for numerous discussions on the subject. All errors remain my own.

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References [1] T. Sandler, W. Enders, An economic perspective on transnational terrorism, Working Paper, vol. 03-04-02, Economics, Finance and Legal Studies, The University of Alabama, 2002, Working Paper Series. [2] C. Anderton, J.R. Carter, Applying intermediate microeconomics to terrorism, Working Paper, vol. 04–12, Department of Economics Faculty Research Series, College of the Holy Cross, 2004, Available at http://www.holycross.edu/departments/ economics/website. [3] A. Lake, 6 Nightmares, Little, Brown and Company, New York, 2000. [4] B.S. Frey, S. Luechinger, Measuring terrorism, Institute for Empirical Research in Economics Working Paper, vol. 171, University of Zurich, 2003. [5] J. Wouters, T. Ruys, The fight against terrorism and the European security strategy, Institute of International Law Working Paper, vol. 64, Faculty of Law, K.U. Leuven, 2004, Available at http://www.internationallaw.be. [6] P. Lenain, M. Bonturi, V. Koen, The economic consequences of terrorism, Organization for Economic Co-operation and Development, Discussion Paper OECDECO/WKP(2002), vol. 20, 2002, http://www.oecd.org/eco. [7] J.R. Brown, R.S. Kroszner, B.H. Jenn, Federal terrorism risk insurance, NBER Working Paper, vol. 9271, National Bureau of Economic Research, 2002, Available at http://www.nber.org/papers/w9271. [8] E. Skons, C. Perdomo, S. Perlo-Freeman, P. Stalenheim, Military Expenditure, Chapter 10, SPIRI Yearbook 2004, Stockholm International Peace Research Institute, 2004 (June 9). [9] M. Trajtenberg, Defense R&D policy in the anti-terrorist era, NBER Working Paper, vol. 9725, National Bureau of Economic Research, 2003, Available at http://www.nber.org/papers/w9725. [10] D. Mowery, N. Rosenberg, Technology and the Pursuit of Economic Growth, Cambridge University Press, UK, 1989. [11] J. Tobin, Macroeconomic strategy in wartime, Cowles Foundation Discussion Paper, vol. 1357, Yale University, 2002. [12] AAAS R&D Funding Update, March 4, 2005: Homeland security R&D in the FY2006 Budget. Available on http:// www.aaas.org/spp/rd. [13] Business Week, The Economy and The Markets; Pg. 28. Headline: Rethinking the economy, 2001 (October). [14] G.J. Knezo, Possible impacts of major counter terrorism security actions on research, development, and higher education, CRS Report for Congress, 2002 (April). [15] S.R. Blomberg, G.D. Hess, A. Orphanides, The macroeconomic consequences of terrorism, CESIFO Working paper, vol. 1151, 2004 Available at http://SSRN.com/abstract=525982. [16] E.F. Kvamme, Technology for Preventing Terrorism: Enhancing Technological Innovation, Government Subsidization and Acquisition, 2002 Kleiner, Perkins, Caufield and Byers. [17] P. Josty, How the war on terrorism affects innovation: when the going gets tough we innovate, Calgary Herald, October 4th 2002. [18] R.E. Yannuzzi, In-Q-Tel: A New Partnership Between the CIA and the Private Sector, 2000 Available at http:// www.cia.gov/cia/publications/inqtel/. [19] J. Stern, The Ultimate Terrorists, Harvard University Press, Cambridge, 1999. Winston T.H. Koh is Associate Professor and Associate Dean, at the School of Economics and Social Sciences, Singapore Management University. He is a member of the Advisory Board of Technological Forecasting and Social Change. His current research interests include investment management in global financial markets, economics of information and collective choice, and industry competition and market structure. His publications have appeared in international journals such as Economic Theory, Journal of Business Venturing, Journal of Economic Behavior and Organization, Journal of Economics, Journal of Institutional and Theoretical Economics, R&D Management, Social Choice and Welfare.