Economic setbacks in conflict zones | Mint
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Business News/ News / World/  Economic setbacks in conflict zones

Economic setbacks in conflict zones

The negative effects of conflict on economic growth can linger on for years, with GDP losses of up to 28% likely within a decade of such events, a new study finds

Photo: BloombergPremium
Photo: Bloomberg

The impact of violent conflicts on human lives is typically measured in terms of death tolls and numbers of those displaced. What is documented less is the long-term impact on the economic progress of countries. As a new study published by the International Monetary Fund (IMF) shows, economic growth can be set back significantly by conflict events.

In a working paper, researchers Natalija Novta and Evgenia Pugacheva find that conflicts have an adverse impact on consumption and trade, leading to a 15% decline in per-capita gross domestic product (GDP) within a year, which cumulatively swells to 28% in 10 years.

The study uses data collected by the Uppsala Conflict Data Program on conflicts—both involving the state and otherwise—from 188 countries during 1989-2018. Conflicts are defined as incidents that killed at least 100 people per million population.

The nature of conflict has changed since the years of the World Wars, but the early 2000s marked a rise in the numbers of conflict-related incidents and deaths, the study notes. To assess the impact of conflict, the study compares the IMF’s prior GDP forecasts and the actual economic data after the incident. The authors find that the decline in economic activity persisted for years after the conflict. For incidents with more deaths, the economic damage was larger, with GDP declining by 38% a decade later.

The study finds that consumption in conflict-affected countries fell by 6% in the same year, and 22% a decade later. Exports fell by 26% and imports by 17% in the same year, and 58% and 34%, respectively, in ten years’ time.

In the year of conflict, production across sectors declined—agriculture by 6%, manufacturing by 16%, and services by 30% on average.

Also read: The Macroeconomic Costs of Conflict

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Published: 20 Jul 2020, 10:01 AM IST
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