LIT5: Chupilkin, M. & Kóczán, Z. (2022). The economic consequences of war: estimates using synthetic controls (Working Paper 271). European Bank for Reconstruction and Development.

Question 1

What are the basic trends to GDP with on and off territory conflict? Chupilkin

Answer 1

We find that
GDP per capita drops are driven by wars
on GDP per capita even increasing relative to that of comparators for some wars territory, with
off territory.

Wars on territory result in a GDP per capita loss of over 7 percentage points relative to a synthetic control the year after the war ends.

Question 2

What are the differences in economic impact on civil wars and interstate wars?

Answer 2

Civil wars (which tend to be longer and are also more likely to remain unresolved)
have more persistent effects than interstate wars.

Losers and non-initiators also see significantly larger drops in GDP per capita than winners and initiators respectively.

Question 3

What is economic reorientation during war? (Chupilkin)

Answer 3

While military production, increased utilization rates and higher productivity
could boost GDP, wars, in particular those fought on the country’s territory, can also result in
significant disruptions to economic activity, heightened uncertainty and increased fiscal burdens.

Question 4

What are the long-lasting effects on war?

Answer 4

long-lasting effects on populations, reflecting casualties, outflows of refugees and fewer births.

Wars also destroy human capital, like long-lasting impacts on individuals that did not receive enough education as a child because of war.

Wars can also significantly reduce capital stocks as existing capital is destroyed
during wars or taken out of the country, while investments in new capital may remain subdued.

Question 5

What may happen to TFP during war?

Answer 5

Total factor productivity (TFP) may drop during wars as established production
processes are disrupted.

However, it could also increase and even offset declines in populations and
capital stocks. This could be the case if technologies created for military purposes are successfully converted to civilian uses, like the internet and aircraft
manufacturing.

Question 6

What are the most important findings of Chupilkin and Koczan on the impact of war on the economy.

Answer 6

1. GDP per capita of countries at war
   drops by up to 3.7 percentage points relative to their synthetic controls in the first year after the end of the war
2. While wars on territory result in a GDP per capita loss of over 7 percentage points relative to a synthetic control the year after the war ends,
   countries engaged in wars not on their territory may even outperform a synthetic comparator. Which may reflect in increaded military spending.
3. populations, capital stocks and total
   factor productivity all decline relative to synthetic controls for wars on territory.
4. GDP per capita drops are more persistent during and after civil wars than interstate wars.
5. GDP per capita drops are typically larger for losers of wars and after unresolved conflicts than for winners.
6. Initiators see smaller drops in GDP per capita than non-initiators.