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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.

Suggested Citation

  • Reuven Glick & Alan M. Taylor, 2005. "Collateral damage: trade disruption and the economic impact of war," Working Paper Series 2005-11, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2005-11
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    More about this item

    Keywords

    War - Economic aspects; International trade;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative
    • N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative

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