In view of the current unpredictable and hostile environment courtesy terrorism, expenditures on defence and security are essential for any nation, but, of course, they also come with an opportunity cost. Such expenditures deplete funds, and resources are not available for spending on health and education to reductions in taxes. A higher risk of terrorism, and the need to combat it, simply raises that opportunity cost. Global supply chains can become extremely costly in terms of time and money when extra layers of security at ports and land borders are added to the process. According to the Convention on the Organisation for Economic Co-operation and Development (OECD), higher transportation costs could have an especially negative effect on emerging economies that have benefited from a decrease in costs in the last decade, and thus on countries’ ability to combat poverty. Economists and others have tried to calculate the economic impact of terrorism for years in areas beset by attacks, such as Spain’s Basque region and Israel. In the last several years, most analyses of the economic costs of terrorism begin with an interpretation of the costs of the September 11, 2001 attacks. The work examined is fairly consistent in concluding that the direct costs of the attack were less than feared. However, the current size of the Pakistan economy does not get a handful response by the federal reserves to domestic and global market needs, and there is very little reserve allocations in the private sector that would help cushion the blow. The economic impact of terrorism can be calculated from a variety of perspectives. There are direct costs to property and immediate effects on productivity, as well as long-term indirect costs of responding to terrorism. These costs can be calculated quite minutely; for example, calculations can be made about how much money is lost in productivity if we all had to sit in our cars, struck in traffic on the way or back from work in line for many extra hours every time we are met with a terrorist incident in town. Terrorists aim to to paralyse the normal political procedures, and force a political change through threats and violence. By harassing a defined population, terrorists intend that this population will exert pressure on political stakeholders to concede to their demands. From a rational calculus viewpoint, political decision-makers must examine the expected costs of conceding, including possible counter-grievances from other groups, against the anticipated costs of future attacks. If the latter costs exceed those of conceding, then a besieged government should rationally give in to the demands of terrorists. Terrorist attacks have gained prominence since 2001, because they cause an awful situation and raise the target audience’s apprehension and, in so doing, greatly increase government’s anticipated costs from future attacks. This follows because a suicide attack kills on average ten people, while a typical terrorist incident causes far more panic and devastation. Markets, schools, private organisations, offices, courts, and financial clockwork come to a stop until the next day. Undoubtedly, governments have more pressure now to react and renew their counterterrorist policies, and are reluctant to give in to irrational demands from terrorists following suicide and other bombings. Sanctions also encourage more terrorism as governments refuse to be held hostage to a political ransom that would appear to make it lose its reputation for toughness. These reputational costs must also be weighed against the gains of giving in e.g., released hostages or an end to suicide bombing and terrorist attacks. Terrorist tactics are more effective in democratic countries, where governments are expected to protect lives and property. Understandably, suicide attacks have been mostly associated with democratic states. Terrorists would attempt to allocate resources between terrorist attacks and legitimate means for achieving political goals. Ironically, actions by authorities to limit protest may close off legitimate avenues of dissent, and push terrorists into engaging in more attacks. Even among attack modes, terrorists would calculate expected costs and expected benefits from different actions in order to pick the best combination for their campaigns. Over the last few decades, political analysts have identified the changing nature of terrorism, for example, the rise of state sponsorship in the early 1980s, and the more recent increase in radicalism-based terrorism. Political and economic analysts have also studied the effectiveness of antiterrorist policies, but typically without applying statistical inference, apart from Brophy-Baermann and Conybeare, which is an important early exception. Since 2001, political analysts have been more interested in empirical analyses of terrorism. Economists would argue that “social cleavage theory” is better equipped to explain terrorism than theories that link terrorism to poor economic development, yet until recently, political analysts have rarely relied on Bueno de Mesquita’s rational-actor models of terrorist behaviour. Given the hypothesis that poverty and inequality are related to an increased rate in terrorism, what we would expect is that most if not all of the countries on the top ten lists for terrorist incidents would have quite a low per capita GDP figures, and would score poorly in terms of any Human Development Index. That is not the case. Only three of the 10 countries fit the profile of low levels of socio-economic development: Yemen, Angola, and Pakistan. Most of the countries are at medium levels of development, and three — Belgium, Israel-Palestine, and France — are advanced, industrialised countries. It does not seem entirely far-fetched to imagine that in some instances barriers meant to safeguard populations from terrorism would actually amplify the risk: poor countries that might have to slow exports because of the cost of security measures are at a greater risk. And that is because of the effects of poverty, political destabilisation and radicalisation among their populations. But much more needs to be done. Risks to falling economy are alarming. There are still no effective counterterrorism policies shown by the present government, amid persistently threatening terrorist attacks. In a symbolic contrast with the realm of undemocratic leaders, the champions of democracy still appear to be able to delay themselves from the present crises. The writer is a professor of psychiatry and consultant forensic psychiatrist in the UK. He can be contacted at fawad_shifa@yahoo.com