by Steve Schifferes BBC News Online economics reporter

The terrorist attacks of September 11 could have long-term negative consequences for the world economy, a leading think tank has warned.

The Organisation for Economic Cooperation and Development (OECD), made up of the world's 30 richest countries, says that despite a short-term economic recovery, world trade could suffer from tighter border controls, and increased military and security spending could reduce the "peace dividend" and lead to lower economic growth.

The OECD also warns that the global insurance market, which suffered the largest loss in its history, has reduced coverage and raised premiums, and may need temporary government assistance.

But it praises governments and central banks for their prompt and decisive response to the initial emergency, which allowed confidence to be restored sooner than expected.

Costs of security

The OECD argues that the cost of new border restrictions could increase the cost of foreign trade by around 1% to 3%, and could lead to a reduction in trade flows by several times as much - by between 3% and 9% - more than counterbalancing the savings made by tariff cuts in the last round of trade talks.

This could reduce productivity if it damaged the global manufacturing supply chain, which often involves multi-national companies ordering many of their key components from overseas.

Already the growth of world trade has slowed sharply in 2001, due to the worldwide slowdown.

It adds that tighter controls on immigration could reduce the numbers of migrant workers from developing countries who are able to send money home - a substantial source of income for many Caribbean, Central American and South Asian countries.

And it warns that developing countries could be hard-hit as many of their exports are bulky and have higher transportation costs. It also cautions that creating "fast-track" procedures for clearing cargo from certain ports could discriminate against poor countries.

Missing peace dividend

The OECD also considers whether the costs of fighting terrorism, and the increase in spending on private security, could hurt world economic growth.

It says that a permanent increase of 1% on US government spending on defence, if financed purely by borrowing, could reduce US GDP by 0.7% by the end of five years, owing to lower investment and productivity in the civilian goods sector.

The OECD argues that such developments could put in jeopardy the so-called "peace dividend," the benefit to economic growth that was supposed to emerge from the end of the Cold War and the global reductions in military spending - although it says that the negative long-term effects of military spending have proved hard to quantify.

Higher insurance costs

The OECD warns that although the private insurance industry has survived the terrorist attacks intact, it has been severely damaged and might be not able to face further losses.

It says the cost to the insurance industry was $30bn-58bn, much higher than the biggest previous loss - that of Hurricane Andrew in Florida in 1992, $21bn.

And it says that premiums are rising and coverage, especially of large "iconic" buildings, has been restricted.

The OECD argues that reductions in coverage could have wider economic implications if it discouraged companies from undertaking risky investments.

And it urges governments to take temporary action to help bolster insurance markets, especially in the case of mega-risks like nuclear terrorism which private insurance will not cover.