COLLATERAL DAMAGE: TRADE DISRUPTION AND THE ECONOMIC IMPACT OF WAR

Conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity, especially international trade. We study the effects of war on bilateral trade with available data extending back to 1870. Using the gravity model, we estimate the cont...

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Bibliographic Details
Published in:The review of economics and statistics 2010-02, Vol.92 (1), p.102-127
Main Authors: Glick, Reuven, Taylor, Alan M.
Format: Article
Language:English
Subjects:
Coefficients
Cost estimates
Economic activity
Economic impact
Gross domestic product
International trade
Mathematical models
Neutrality
Studies
Trade
Trade barriers
War
War conflict
World wars
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Summary:Conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity, especially international trade. We study the effects of war on bilateral trade with available data extending back to 1870. Using the gravity model, we estimate the contemporaneous and lagged effects of wars on the trade of belligerent nations and neutrals, controlling for other determinants of trade, as well as the possible effects of reverse casuality. We find large and persistent impacts of wars on trade, national income, and global economic welfare. We also conduct a general equilibrium comparative statics exercise that indicates costs associated with lost trade might be at least as large as the conventionally measured direct costs of war, such as lost human capital, as illustrated by case studies of World Wars I and II.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest.2009.12023