Policy Article

The Price of War

Authors

  • Federle
  • J.
  • Meier
  • A.
  • Müller
  • G.J.
  • Mutschler
  • W.
  • Schularick
  • M.
Publication Date

In view of increasing geopolitical tensions, the economic consequences and costs of wars on the global economy are increasingly coming into focus. In their Kiel Policy Brief, the authors examine the costs of more than 150 wars since 1870. In the immediate theaters of war alone, real GDP falls by an average of 30 percent five years after the start of the war, while inflation rises by up to 15 percentage points. Further war costs are added to neighboring countries and countries further away—whereby the costs decrease with increasing distance. Historical data is also used to calculate the expected economic damage caused by the war in Ukraine. The authors expect a cumulative GDP loss in Ukraine of around 120 billion US dollars by 2026. The Ukrainian capital stock would fall by more than 950 billion US dollars over the same period. The costs for third countries not directly involved in the war amount to 250 billion US dollars, of which around 70 billion US dollars are attributable to the European Union and 15–20 billion US dollars to Germany alone. With the "Price of War Calculator", a tool is available free of charge at priceofwar.org, which can be used to estimate the economic impact of hypothetical wars.

Info

Key Words

  • Geoeconomics
  • War
  • Spillovers
  • Distance
  • Supply Shocks