The Long Run Effect of Wars

Abstract

Wars are devastating events which generate destruction and incur in significant costs, invariably leading to negative consequences. The aim of this thesis is to examine the economic effects of wars , with a particular focus on the impact on GDP per capita.

Following a brief introduction, the first chapter delves into the consequences that conflicts have on economy and on financial markets. This section will explore the effects of an increase in military expenditures and the concept of the opportunity cost, with a specific discussion on the “Broken Window Fallacy”; along with the consequences of war, including capital destruction, GDP reduction, and the impact on trade, production, and inflation. To conclude, the chapter presents the effects of wars on financial markets.

The study then transitions into the analytical part, where the dataset created by the research team, I took part to, is examined in detail. In the second chapter, this dataset is presented and described, then it is compared to an existing one, namely the Project Mars dataset, which is the state of the art on the topic.

The script continues with the presentation of the empirical regression analysis. This section outlines the variables employed, from dependent to independent ones, including also control variables. The output variables could be macroeconomic variables — such as GDP per capita and inflation — and financial variables, specifically nominal interest rate. The thesis concludes with the presentation of the estimates obtained through the regression analysis, followed by a comprehensive discussion of the results. This final section is dedicated exclusively to the model and the results concerning the effects of wars on GDP per capita.