In the recent history, Pakistan is facing the menace of terrorism. Besides facing the consequences of Afghan War, Pakistan is also affected by various ethnic, religious and linguistic conflicts which have increased terrorists’ activities. These conflicts have severely affected the socio-economic structure of Pakistan. To gauge the impact of terrorism on Pakistan’s economic growth Solow economic growth model has been used. Using data on terrorism from Global Terrorism Database, co-integration analysis for the period 1981-2012 has been applied. The analysis suggests that terrorism has negatively affected the economic growth in Pakistan. Among the various variables that were used the terrorism is most significant and major contributor in reducing the economic growth. However, study finds that foreign assistance that is provided to Pakistan in the aftermath of the participations in Afghan war and the war against terrorism; in the shape of aid, grants and debt rescheduling etc. has a positive impact on the economic growth.