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Collateral damage: trade disruption and the economic impact of war

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  • Reuven Glick
  • Alan M. Taylor

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 Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2005-11.

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Date of creation: 2005
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Handle: RePEc:fip:fedfwp:2005-11

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Keywords: War - Economic aspects ; International trade;

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  1. Gregory D. Hess, 2002. "The Economic Welfare Cost of Conflict: An Empirical Assessment," Claremont Colleges Working Papers 2002-08, Claremont Colleges.
  2. Michael W. Klein & Jay C. Shambaugh, 2004. "Fixed Exchange Rates and Trade," NBER Working Papers 10696, National Bureau of Economic Research, Inc.
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  18. 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.
  19. 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, March.
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  1. Conflicts and Economic Development
    by Dany Jaimovich - Bakary Baludin in Development Therapy on 2013-03-04 14:32:00
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