Summary War brings with it serious consequences for society and the economy. Indeed, in a study of 135 wars across 115 countries from 1946 to 2023, Kellogg's Efraim Benmelech and his colleague found that war, on average, led to a decline in real GDP by about 13 percent, household consumption by about 11 percent, investment in the countries' infrastructure and technology by about 14 percent, exports by about 13 percent, imports by about 7 percent, and revenue by about 14 percent. Together, these fiscal pressures propelled inflation for at least 10 years after the onset of war.
While it's often the most-visually striking results that grab our attention, in examining the costs of war, it is crucial to understand how it affects the economy.
"Of course, economic consequences do not encompass all of the misery that war inflicts on people," says Efraim Benmelech, a Kellogg professor of finance and economist who studies the economics of conflict and national security. "But eventually, the loss of human capital -- of people -- and the destruction of property affect a country's economic well-being, and to an extent, it does subsume some of that misery."
While there are past studies that have looked at the impact of war on the economy, most have centered on a narrow number of wars, regions, or years. Benmelech sought to widen the scope of this prior work and collaborated with Joao Monteiro of the Einaudi Institute for Economics and Finance to investigate the macroeconomic consequences of wars across the globe over a period of roughly 75 years.
Benmelech and Monteiro analyzed more than 100 wars in the post-World War II era and found that they led to severe and persistent negative effects on the economy of all the countries entangled in conflict. The consequences included a significant and long-lasting drop in real GDP, collapsing investment, the deterioration of government finances, and a sharp rise in inflation.
Collectively, the findings make clear that the economic toll of war extends beyond the immediate costs of battle, leaving deep and lasting scars on the broader economy.
"There are some wars you cannot avoid," Benmelech says. "So it's important to know what the consequences are. And the quantification of the effect of wars is that wars are bad economic shocks."
For their study, the economists drew from various publicly available records -- including the Uppsala Conflict Data Program and the Peace Research Institute Oslo Armed Conflict Dataset -- to identify all wars worldwide that took place from 1946 to2023.
To qualify as a war, it had to be an armed conflict over a difference about government or territory, involve at least one state government (or country), and lead to at least 25 battle-related deaths per year.
The researchers examined 135 such conflicts across 115 countries.
For each war, they set the start of conflict as day zero and then observed what happened to a battery of economic indicators for each country involved from five years before to 10 years after the war's onset.
They also matched each of the countries in war to a selection of 221 countries that were similar in terms of GDP, region, debt, and level of democracy but not involved in a war during the same period. By benchmarking the economic performance of warring countries to these control countries, they were able to rule out factors other than war, such as natural disasters or poor governance, that could have otherwise significantly changed a country's economy.
"That enabled us to show that there were no pre-trends, meaning that we could actually attribute the decline in economic conditions to the wars themselves," Benmelech says.
A common pattern emerged among the countries at war.
First, war triggered an immediate increase in military spending along with a decrease in spending elsewhere. Military expenditures on average rose by about 9 percent at the onset of war and stayed elevated for three years, which was the median duration of a war.
Next, war led to the destruction of part of a country's territory and physical assets such as buildings and infrastructure.
And finally, war reduced overall productivity, not only because it disrupted production but also because it made it more likely for resources to be misallocated, people to be displaced or killed, and institutional control to be eroded.
War in effect shrank both the availability of a country's assets as well as the efficiency with which they were used, ultimately reducing its economic output for an extended period of time.
As a result, practically all of the economic measures that the researchers looked at worsened on average, even after adjusting for inflation.
Real GDP fell by about 13 percent, with no evidence of recovery even a decade after the onset of war. Household consumption declined by about 11 percent. Investment in the countries' structures, technology, and other areas collapsed, dropping by nearly 14 percent. And there was a significant decline in exports (roughly 13 percent) and imports (roughly 7 percent).