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 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 causality. We find large and persistent impacts of wars on trade, on national income, and on 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 War I and World War II.
Published: Reuven Glick & Alan M Taylor, 2010. "Collateral Damage: Trade Disruption and the Economic Impact of War," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 102-127, 05.
This paper was revised on May 6, 2008