Please turn on JavaScript

Brooks Wilson's Economics Blog: Sevastianova on War and Economic Growth

Thursday, February 18, 2010

Sevastianova on War and Economic Growth

In "WWII and the Economy," I hypothesized that war was not good for the economy and stated three conditions that I believed would not hold to "prove" my hypothesis in a type of proof by contradiction.  The conditions were that consumers do not mind the consumption of armaments, that the war is fought on foreign soil, and that little value is placed on the value of lost lives. 

Daria Sevastianova address the impact of war on a country's economy in "Impact of War on Country per Capita GDP: A Descriptive Analysis" which was published in Peace Economics, Peace Science and Public Policy, Vol. 15, 2009.  Her conclusion reads   
This paper applies empirical growth framework to study the effect of war on economic growth. We model growth over one, two-, and five-year time periods, as well as check robustness of findings with OLS and FE estimation. Along with a standard set of explanatory variables included in growth regressions, COW data on civil and international war are used to code war incidence during 1970-2000 in a panel of 90 countries.

Regression analysis demonstrates that the average effect of civil and international war is to decrease income growth. Civil war harms all economies, while international war might boost growth in some countries. The findings in this paper point to the fact that economies with low growth rates are involved in civil war, whereas faster growth economies are involved in international wars. In addition, the negative effects of war are more pronounced in the short run growth models based on annual and biannual data (where we find negative and statistically significant coefficients), whereas the effect of war on five-year growth rates is statistically insignificant. 

The study also provides a descriptive analysis of how civil and international wars affect income per capita level, where war incidence is plotted against real GDP per capita in a sample of countries. A visual examination of data corroborates the results of regression analysis: while civil war mostly reduces income, there is much more ambiguity in the effect of international war. Some countries, in fact, are able to sustain economic growth throughout the duration of war.

Preliminary results obtained from graphing war data on an individual country basis from 1970 to 2000 point to the fact that there is a considerable amount of variation in the economic effects of political instability. The impact of war appears to vary considerably with conflict severity, time period, and by country. The wide variation in these results warrants a more detailed multivariate analysis in order to ascertain how intra- and interstate conflict affects real income per capita. Focus on different levels of conflict intensity, as well as sample heterogeneity might prove productive for future investigation, where conflict data collected by political scientists are applied in the empirical growth framework.
The model that she employs is tested with data, making it more than a story like the one I told.  It does not directly contradict my conclusions although it demonstrates that some countries are able to sustain growth through a conflict.  For example, income could grow, but the availability of consumer goods could stagnate or decline.

In attempting to contact Sevastianova about her article, I found an interview taken from the Evansville Business Journal (EBJ), October 2008.  I liked her response to one question because it deals with a strange demographic in economics faculties, they are dominated by men.  When asked what she enjoys about her current position she replied
I like sparking people's interest in economics, and I really like it when girls see they can learn economics and are aware of all the various job opportunities there are in the field.

Hear, hear.

1 comment:

  1. Andi Thomas27/4/11 7:16 PM

    I find it interesting to read about the effects of war on an economy. I have to wonder if every country could stand to profit off of a war or at least maintain a constant economy if they were careful and planned well. For instance, could they pursue oil drilling versus high fashion items? Or weapons versus wine? I wonder too if people were cautious with their spending and savings if we could all pool together in a time of need to contribute in positive ways to the economy? Instead of luxury cars we could grow our own gardens? How would that affect the economy? If more people were to grow their own food and make their own clothes, different types of industries would grow while others shrank, but I think that altogether it would be a much more positive effect than the alternative of spending our money unwisely in a time when its in short supply.