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Collateral Damage: Trade Disruption and the Economic Impact of War

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Author Info
Taylor, Alan (U of California, Davis)
Glick, Reuven (Federal Reserve Bank of San Francisco)

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Abstract

Conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity, especially international trade. Yet nothing is known empirically about these effects in large samples. We study the effects of war on bilateral trade for almost all countries 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. We find large and persistent impacts of wars on trade, and hence on national and global economic welfare. A rough accounting indicates that such costs might be of the same order of magnitude as the "direct" costs of war, such as lost human capital, as illustrated by case studies of World War I and World War II.

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Paper provided by University of California at Davis, Department of Economics in its series Working Papers with number 05-15.

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Date of creation: Aug 2005
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Handle: RePEc:ecl:ucdeco:05-15

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Find related papers by JEL classification:
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F10 - International Economics - - Trade - - - General
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
N40 - Economic History - - Government, War, Law, and Regulation - - - General, International, or Comparative
N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative

References listed on IDEAS
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  1. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 7-46, 04. [Downloadable!] (restricted)
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  3. Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe," Open Economies Review, Springer, vol. 16(2), pages 135-152, April. [Downloadable!] (restricted)
  4. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February. [Downloadable!] (restricted)
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  5. John R. Oneal & Bruce Russett, 2001. "Clear and Clean: The Fixed Effects of the Liberal Peace," International Organization, MIT Press, vol. 55(2), pages 469-485, June. [Downloadable!] (restricted)
  6. Flandreau, Marc & Maurel, Mathilde, 2001. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe: Just Do It," CEPR Discussion Papers 3087, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Oneal, John R. & Russett, Bruce, 2001. "Clear and Clean: The Fixed Effects of the Liberal Peace," International Organization, Cambridge University Press, vol. 55(02), pages 469-485, April. [Downloadable!]
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  11. J. Lopez-Cordova & Chris Meissner, 2000. "Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era," Center for International and Development Economics Research, Working Paper Series 1003, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  12. Thursby, Jerry G & Thursby, Marie C, 1987. "Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 488-95, August. [Downloadable!] (restricted)
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  14. S. Brock Blomberg & Gregory Hess, 2004. "How Much Does Violence Tax Trade?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  15. Gregory D. Hess, 2003. "The Economic Welfare Cost of Conflict: An Empirical Assessment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  16. Michael W. Klein & Jay C. Shambaugh, 2004. "Fixed Exchange Rates and Trade," NBER Working Papers 10696, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Frankel, Jeffrey A & Stein, Ernesto & Wei, Shang-Jin, 1996. "Regional Trading Arrangements: Natural or Supernatural," American Economic Review, American Economic Association, vol. 86(2), pages 52-56, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kris James Mitchener & Marc Weidenmier, 2008. "Trade and Empire," NBER Working Papers 13765, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Bennour, Khaled, 2008. "The Value of Rents and the Likelihood of Conflicts," MPRA Paper 15012, University Library of Munich, Germany. [Downloadable!]
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  3. Mirza, Daniel & Verdier, Thierry, 2007. "Are Lives a Substitute for Livelihoods? Terrorism, Security and US Bilateral Imports," CEPR Discussion Papers 6173, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Michael Hicks & Major Jeffrey S Smith, 2008. "Warfare, Civil Conflict and the Spatial Impacts on Domestic Investment: Evidence from South America, 1950-2000," Working Papers 200801, Ball State University, Department of Economics, revised Apr 2008. [Downloadable!]
  5. Lagerlöf, Nils-Petter & Tangerås, Thomas, 2005. "Human Capital, Rent Seeking, and a Transition from Stagnation to Growth," Working Paper Series 656, Research Institute of Industrial Economics. [Downloadable!]
  6. Kris James Mitchener & Masato Shizume & Marc D. Weidenmier, 2008. "Why did Countries Adopt the Gold Standard? Lessons from Japan," Discussion Paper Series 228, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  7. Vincent Vicard, 2006. "Trade, Conflicts, and Political Integration: the Regional Interplays," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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