The Review of Economics and Statistics Vol. 92 No. 1 2010

Collateral Damage: Trade Disruption and the Economic Impact of War

Reuven Glick¹; Alan M. Taylor^2,3

¹ Federal Reserve Bank of San Francisco · ² Center for Economic and Policy Research · ³ University of California, Davis

Abstract

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.

DOI

10.1162/rest.2009.12023

Volume

92

Issue

1

Pages

102-127

Language

en

Sources

openalex crossref