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Collateral Damage: Trade Disruption and the Economic Impact of War

  • Reuven Glick

    (Federal Reserve Bank of San Francisco)

  • Alan M. Taylor

    (University of California, Davis, NBER, and CEPR)

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, national income, and 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 Wars I and II. © 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 92 (2010)
Issue (Month): 1 (February)
Pages: 102-127

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Handle: RePEc:tpr:restat:v:92:y:2010:i:1:p:102-127
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