The Economic Welfare Cost of Conflict: An Empirical Assessment

Abstract

War, whether external or internal, large or small, is a costly endeavor. Loss of life, loss of close friends or family, and the destruction of material possessions all play a part in the costs of war. The purpose of this paper is to capture only the material, economic welfare costs of conflict stemming from the altered path of consumption resulting from conflict. As such, the measure is quite a lower bound for the true and more encompassing welfare loss from living in a non-peaceful world. But how much would individual be willing to pay to avoid just the economic costs of conflict? Remarkably, even these pure economic welfare losses from conflict are quite large. I find that, on average, individuals who live in a country that has experienced some conflict during the 1960-1992 sample would permanently give up to approximately 8 percent of their current level of consumption to live in a purely peaceful world. Such large potential welfare gains from reducing warfare should make economists and policy-makers take note, and continue to investigate and advocate for domestic and international institutions to realize such gains.

Keywords: Growth, Conflict, Welfare Costs

JEL Classification: E21, E32, H56