This study evaluates the popular hypothesis that poverty, inequality, and poor economic development are root causes of terrorism. Employing a series of multiple regression analyses on terrorist incidents and casualties in ninety-six countries from 1986 to 2002, the study considers the significance of poverty, malnutrition, inequality, unemployment, inflation, and poor economic growth as predictors of terrorism, along with a variety of political and demographic control variables. The findings are that, contrary to popular opinion, no significant relationship between any of the measures of economic development and terrorism can be determined. Rather, variables such as population, ethno-religious diversity, increased state repression and, most significantly, the structure of party politics are found to be significant predictors of terrorism. The article concludes that “social cleavage theory” is better equipped to explain terrorism than are theories that link terrorism to poor economic development.