War and Economic Performance

Abstract

This article studies the consequences of inter-and intrastate wars for economic growth in a large cross-section of countries during the period 1960–89. It establishes that cross-country differences in economic growth are systematically related to the severity and duration of war. The combined prewar, contemporaneous, and postwar association between growth and war is negative; that is, economic performance has been lower in countries that fought a severe and/or prolonged war. However, the causal effect of war on postwar economic performance is positive. In particular, the longer or more severe the war, the higher the subsequent long-term rate of economic growth. A possible interpretation of these findings is that war is more likely to occur in poorly performing countries and/or to have a negative direct – contemporaneous – effect on growth. But in the longer term, war creates growth-enhancing possibilities. Interestingly, these effects arise mostly from civil wars and are quantitatively quite substantial. For instance, an increase in war duration by 10% leads to an increase of 2.1% in the average growth rate. The findings of this article are thus consistent with the predictions of the theories of both Organski & Kugler and Olson.