The Endogenous Nature of War and Its Economic Consequences

Abstract

Macrohistorical theories of development often depict war as positively affecting the economy. Yet these theories, and the supporting evidence, assume that war is an exogenous shock. After revisiting the raw data in Europe, we suppose instead that war is endogenous and create a model of how different populations of producers, attackers, and defenders co-evolve. We then investigate what typical statistical analyses estimate with data generated from our model. Unfortunately, these statistical analyses typically suggest war positively affects the economy when in fact it is harmful. We caution against "mostly harmless" econometrics that suggest European prosperity comes from its violent past rather than its peaceful present.

Keywords: war economy, historical dynamics, mostly-harmless econometrics JEL Classification: