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The Economic Welfare Cost of Conflict: An Empirical Assessment

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  • Gregory D. Hess

    (Claremont McKenna College and CESifo)

Abstract

War, whether external or internal, large or small, is a costly endeavor. Loss of life, loss of close friends or family, and the destruction of material possessions all play a part in the costs of war. The purpose of this paper is to capture only the material, economic welfare costs of conflict stemming from the altered path of consumption resulting from conflict. As such, our measure is quite a lower bound for the true and more encompassing welfare loss from living in a non-peaceful world. Remarkably, however, even these pure economic welfare losses from conflict are large. We find that, on average, individuals would give up over 8 percent of their current level of consumption to live in a peaceful world. Such large potential welfare gains from reducing warfare should make economists and policy-makers take note.

Suggested Citation

  • Gregory D. Hess, 2002. "The Economic Welfare Cost of Conflict: An Empirical Assessment," Claremont Colleges Working Papers 2002-08, Claremont Colleges.
  • Handle: RePEc:clm:clmeco:2002-08
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    File URL: http://www.claremontmckenna.edu/rdschool/papers/2002-08.pdf
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    References listed on IDEAS

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    1. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    2. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
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    Cited by:

    1. 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, February.
    2. Stergios Skaperdas, 2011. "The costs of organized violence: a review of the evidence," Economics of Governance, Springer, vol. 12(1), pages 1-23, March.
    3. Garfinkel, Michelle R. & Skaperdas, Stergios & Syropoulos, Constantinos, 2015. "Trade and insecure resources," Journal of International Economics, Elsevier, vol. 95(1), pages 98-114.
    4. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, Elsevier.
    5. Garfinkel, Michelle R. & Skaperdas, Stergios & Syropoulos, Constantinos, 2008. "Globalization and domestic conflict," Journal of International Economics, Elsevier, pages 296-308.
    6. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2007. "Calculating Tragedy: Assessing The Costs Of Terrorism," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 1-24, February.
    7. Michelle R. Garfinkel & Stergios Skaperdas & Constantinos Syropoulos, 2009. "International Trade and Transnational Insecurity: How Comparative Advantage and Power are Jointly Determined," CESifo Working Paper Series 2680, CESifo Group Munich.
    8. Jose Luis Evia & Roberto Laserna & Stergios Skaperdas, 2008. "Socio-Political Conflict and Eonomic Performance in Bolivia," Working Papers 070814, University of California-Irvine, Department of Economics.
    9. Bove, Vincenzo & Gavrilova, Evelina, 2014. "Income and Livelihoods in the War in Afghanistan," World Development, Elsevier, vol. 60(C), pages 113-131.
    10. Carlos Bozzoli & Tilman Brueck & Tony Muhumuza, 2016. "Activity Choices Of Internally Displaced Persons And Returnees: Quantitative Survey Evidence From Post-War Northern Uganda," Bulletin of Economic Research, Wiley Blackwell, vol. 68(4), pages 329-347, October.
    11. Stéphane Auray & Aurélien Eyquem & Frédéric Jouneau-Sion, 2009. "Riots, Battles and Cycles," Cahiers de recherche 09-01, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke, revised 05 Apr 2009.
    12. Stergios Skaperdas, 2008. "An economic approach to analyzing civil wars," Economics of Governance, Springer, vol. 9(1), pages 25-44, January.
    13. Gupta, Sanjeev & Clements, Benedict & Bhattacharya, Rina & Chakravarti, Shamit, 2004. "Fiscal consequences of armed conflict and terrorism in low- and middle-income countries," European Journal of Political Economy, Elsevier, vol. 20(2), pages 403-421, June.
    14. Michael McBride & Stergios Skaperdas, 2005. "Explaining Conflict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future," CESifo Working Paper Series 1636, CESifo Group Munich.
    15. Voigtländer, Nico & Voth, Hans-Joachim, 2009. "The Three Horsemen of Growth: Plague, War and Urbanization in Early Modern Europe," CEPR Discussion Papers 7275, C.E.P.R. Discussion Papers.
    16. Robert J. Barro, 2009. "Rare Disasters, Asset Prices, and Welfare Costs," American Economic Review, American Economic Association, vol. 99(1), pages 243-264, March.
    17. Michelle R. Garfinkel & Stergios Skaperdas & Constantinos Syropoulos, 2008. "Globalization and Insecurity: Reviewing Some Basic Issues," Working Papers 080901, University of California-Irvine, Department of Economics.
    18. Patricia Justino, 2009. "The Impact of Armed Civil Conflict on Household Welfare and Policy Responses," Research Working Papers 12, MICROCON - A Micro Level Analysis of Violent Conflict.
    19. Blomberg, S. Brock & Hess, Gregory D. & Orphanides, Athanasios, 2004. "The macroeconomic consequences of terrorism," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 1007-1032, July.
    20. Patricia Justino, 2006. "On the Links between Violent Conflict and Chronic Poverty: How Much Do We Really Know?," HiCN Working Papers 18, Households in Conflict Network.

    More about this item

    Keywords

    Growth; Conflict; Welfare Costs;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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