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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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    References listed on IDEAS

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    1. Steckel, Richard H. & Moehling, Carolyn M., 2001. "Rising Inequality: Trends In The Distribution Of Wealth In Industrializing New England," The Journal of Economic History, Cambridge University Press, vol. 61(01), pages 160-183, March.
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    4. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 287-343 National Bureau of Economic Research, Inc.
    5. Goldin, Claudia D. & Lewis, Frank D., 1975. "The Economic Cost of the American Civil War: Estimates and Implications," The Journal of Economic History, Cambridge University Press, vol. 35(02), pages 299-326, June.
    6. Dora L. Costa & Matthew E. Kahn, 2003. "Cowards and Heroes: Group Loyalty in the American Civil War," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 519-548.
    7. Khan, B. Zorina & Sokoloff, Kenneth L., 1993. "“Schemes of Practical Utility”: Entrepreneurship and Innovation Among “Great Inventors” in the United States, 1790–1865," The Journal of Economic History, Cambridge University Press, vol. 53(02), pages 289-307, June.
    8. Joseph P. Ferrie, 1999. "Yankeys Now: Immigrants in the Antebellum U.S. 1840-1860," NBER Books, National Bureau of Economic Research, Inc, number ferr99-1.
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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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