Handbook on the Economics of Conflict
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Handbook on the Economics of Conflict

Edited by Derek L. Braddon and Keith Hartley

The Handbook on the Economics of Conflict conveys how economics can contribute to the understanding of conflict in its various dimensions embracing world wars, regional conflicts, terrorism and the role of peacekeeping in conflict prevention.
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Chapter 14: The Macroeconomic Effects of Conflict: Three Case Studies

Christos Kollias and Suzanna-Maria Paleologou


* Christos Kollias and Suzanna-Maria Paleologou 14.1 INTRODUCTION A rapidly expanding literature addresses the impact conflict has on economic performance, growth and prosperity. Conflict – be it inter- or intrastate – and development are invariably considered to be incompatible given the multitude of channels through which the former can adversely impact upon development and socio-economic progress (inter alia: Koubi, 2005; Murdoch and Sandler, 2002; Collier, 1999; Gupta et al., 2004; Barros, 2002). Conflict, and even more so war, causes a diversion of valuable and scarce resources to less productive and, in fact, destructive uses. War, apart from human suffering, leads to the destruction of both human and physical capital, with the concomitant impact on development prospects. Even the preparations by rivals for a possible armed confrontation, or simply the need to maintain credible deterrence vis-à-vis adversaries, divert resources from growth-stimulating uses to potentially growth-retarding ones. This resource diversion is reflected in the high national security burdens (national security spending expressed as a share of gross domestic product) invariably exhibited by states engaged in rivalries with neighbouring countries or plagued by internal strife and conflict such as civil wars. Both inter- and intrastate conflicts absorb resources the costs of which take the form of higher spending on the military, or the paramilitary and other security forces depending on the type of conflict. Trade-offs with other budgetary items such as for instance spending on health, infrastructures, education and social protection and/or fiscal imbalances are the first obvious consequences of increased security outlays. To these,...

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