Wars reduce the world economy by 12% – but some countries gain economically from war
As the world watches if Russia will, again, invade Ukraine, one thing is clear: Peace can really boost economic growth while war reduces GDP, a new study published in the prestigious Journal for Peace Research has found. The group of authors from ISDC and several other institutions find that, in 2014, the world would have been 12% wealthier had violent conflict been absent since 1970. The study shows huge global disparities in how the costs of conflict are distributed.
As the world watches if Russia will, again, invade Ukraine, one thing is clear: Peace can really boost economic growth while war reduces GDP, a new study published in the prestigious Journal for Peace Research has found.
The group of authors from ISDC and several other institutions find that, in 2014, the world would have been 12% wealthier had violent conflict been absent since 1970. The order of magnitude of the economic burden of war is comparable to that of other ‘global public bads’, such as climate change, land degradation, alcohol consumption or malaria.
The study shows huge global disparities in how the costs of conflict are distributed (see the map attached). Developing countries were hit hardest by violent conflict, while most high-income countries benefited from their external participation; thereby exaggerating global imbalances. Countries that fight wars far away from home benefit economically from their domestic military spending, while causing damage to foreign territories. By region, Asia would have benefited the most from the absence of violent conflict between 1970 and 2014, while North America would have lost USD 0.9 trillion during that period. For seven countries (including Iraq and Afghanistan), total GDP would have more than doubled in the absence of violent conflict.
The authors find that civil conflicts continue to significantly influence growth up to four years after the conflict ends. While they do find some evidence of a post-conflict ‚peace dividend‘, the net accumulated GDP gap remains negative for most affected economies, especially those emerging from civil conflicts.
Violent conflict has a negative effect on economic output as it disrupts production, prioritises military spending over other, more productive public expenditures, and encourages portfolio substitutions by shifting assets from violent to more peaceful countries. In addition, countries neighbouring those in which violent conflicts occur suffer from increased insecurity and reduced trade.
The findings suggest that public policy should, first, aim to prevent wars to avoid the costs of conflict in the first place. If wars have taken place, accelerating post-conflict reconstruction can help the affected countries recover the lost output. In practice, many war-affected countries are left to their own devices, living under the growth-reducing shadows of past conflicts.
Using a panel of 190 countries and studying macroeconomic and conflict data from 1970 to 2014 with advanced statistical techniques, the authors estimate the average cost of various dimensions of conflicts on yearly GDP growth. Uniquely, they consider three types of conflict: civil, interstate and non-territorial war (an example of the latter is participation in conflict on foreign soil). A conflict intensity scale from 0 to 10 is used in order to derive the differential impact on economic growth.
Professor Tilman Brück, Director of ISDC and the lead author of the study, comments: “Our study is the most comprehensive and detailed investigation of the economic costs of war. Our analysis shows that the economic benefits of peace are taken for granted all too often. We need to strengthen institutions for peace to achieve prosperity and sustainability for all. Preventing war is good economics. And rebuilding post-war economies is also a good investment.”
The study was prepared by Olaf J. De Groot (Office of the UN Resident Coordinator for Jamaica, Bahamas, Bermuda, Turks and Caicos & Cayman Islands), Carlos Bozzoli (Fundación Bunge y Born), Anousheh Alamir (European Center for Advanced Research in Economics and Statistics, Université libre de Bruxelles) and Tilman Brück (ISDC – International Security and Development Center, Natural Resources Institute, Leibniz Institute of Vegetable and Ornamental Crops, IZA and Households in Conflict Network).
Embargo: This press release is embargoed until 9am, Berlin time on Friday, 11 February 2022.
Professor Tilman Brück, Director, ISDC - International Security and Development Center, Berlin
(via Sarah Haffar, email@example.com, tel: +447447714918)
de Groot, O. J., C. Bozzoli, A. Alamir and T. Brück (2021). “The Global Economic Burden of Violent Conflict”. Journal of Peace Research, published 11 February 2022. DOI: 10.1177/00223433211046823 (available from 9am, Berlin-time, 11 February 2022)