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The Impact of War on Resource Allocation: 'Creative Destruction' and the American Civil War

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  • B. Zorina Khan

Abstract

What is the effect of wars on industrialization, technology and commercial activity? In economic terms, such events as wars comprise a large exogenous shock to labor and capital markets, aggregate demand, the distribution of expenditures, and the rate and direction of technological innovation. In addition, if private individuals are extremely responsive to changes in incentives, wars can effect substantial changes in the allocation of resources, even within a decentralized structure with little federal control and a low rate of labor participation in the military. This paper examines war-time resource reallocation in terms of occupation, geographical mobility, and the commercialization of inventions during the American Civil War. The empirical evidence shows the war resulted in a significant temporary misallocation of resources, by reducing geographical mobility, and by creating incentives for individuals with high opportunity cost to switch into the market for military technologies, while decreasing financial returns to inventors. However, the end of armed conflict led to a rapid period of catching up, suggesting that the war did not lead to a permanent misallocation of inputs, and did not long inhibit the capacity for future technological progress.

Suggested Citation

  • B. Zorina Khan, 2015. "The Impact of War on Resource Allocation: 'Creative Destruction' and the American Civil War," NBER Working Papers 20944, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20944
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    Cited by:

    1. Michael J. Andrews, 2020. "Local Effects of Land Grant Colleges on Agricultural Innovation and Output," NBER Chapters, in: Economics of Research and Innovation in Agriculture, pages 139-175, National Bureau of Economic Research, Inc.
    2. Billington, Stephen D., 2018. ""War, what is it good for?": The industrial revolution!," QUCEH Working Paper Series 2018-12, Queen's University Belfast, Queen's University Centre for Economic History.
    3. James Feigenbaum & James Lee & Filippo Mezzanotti, 2022. "Capital Destruction and Economic Growth: The Effects of Sherman's March, 1850–1920," American Economic Journal: Applied Economics, American Economic Association, vol. 14(4), pages 301-342, October.
    4. Billington, Stephen D. & Lane, Joe, 2023. ""Clause and effect": Invention and state intervention during the French Revolutionary and Napoleonic Wars," QUCEH Working Paper Series 23-05, Queen's University Belfast, Queen's University Centre for Economic History.

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    More about this item

    JEL classification:

    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • N4 - Economic History - - Government, War, Law, International Relations, and Regulation
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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