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Thursday, July 20, 2006

Recovering from War

Austan Goolsbee of the University of Chicago Graduate School of Business on the long-run economic consequences of war and ethnic division:

Count Ethnic Divisions, Not Bombs, to Tell if a Nation Will Recover From War, by Austan Goolsbee, Economic Scene, NY Times: ...[P]erhaps it is worth looking at the long-run prospects for ... nations once ... wars actually end... The good news is that history suggests that the destruction of war has no lasting impact on economic prospects. The bad news is that most of these countries, especially Iraq, are filled with ethnic divisions and civil discord. The evidence shows that these problems, unlike bombs, cause lasting damage to the prospects for a nation’s economy, even if they do not boil over into civil war.

The negligible long-term impact of war itself is rather startling but has been noted in numerous studies. The recent work of ... Edward Miguel and Gérard Roland — for example, “The Long Run Impact of Bombing Vietnam,” starts from the fact that some 10 percent of the 584 districts in Vietnam received nearly three-quarters of the total bomb tonnage. No matter how they sliced the data, they did not find that heavier bombing during the war corresponded with any major differences in poverty rates, access to electricity, literacy, population density or consumption in the 1990’s and 2000’s.

Similar studies have documented that the long-run population of Japanese cities was not affected by whether they were destroyed in World War II (including Hiroshima and Nagasaki, whose destruction was radioactive, to boot) and likewise for cities in Europe. After suffering the enormous immediate costs of war, it seems that people rather quickly return to where they left off. In the long run, things return to normal...

But for the optimists hoping that war in the Middle East will soon end so the rebuilding can commence, there is a serious problem. The political boundaries of these countries, especially Iraq, make the long-term prospects bleak. The existence of ethnic division in the countries will probably mar them permanently in a way that bombs never could.

Boundaries between many countries of the Middle East, like those in Africa, were haphazardly put together in negotiations by European colonizers who had little regard for ethnic realities. Indeed, they sometimes even lumped enemies together on purpose, hoping that ethnic hatreds might reduce anticolonial feelings. In a new study, three economists — Alberto F. Alesina and Janina Matuszeski of Harvard University and William Easterly of New York University — document how important internal cohesion is for the health of a society.

Their study, “Artificial States,” creates two measures of how “artificial” a nation’s boundaries are. The first measures whether the country’s political borders partition ethnic groups into separate countries...

The second measures how squiggly the borders of a country are. Straight lines are usually the sign of an arbitrary colonial mapmaker. Natural barriers like rivers and mountains seldom look tidy. ...[T]heir study compares the performance of countries with natural borders to those with artificial ones and finds, overwhelmingly, that artificial nations suffer terribly — lower income, horribly ineffective and corrupt governments, less respect for the law, low literacy, limited access to clean water, poor health care, you name it. ...

Viewed from this perspective, the long-term economic prospects for Afghanistan and Iraq do not look good. It is not the destruction of war. That will end and the countries can be rebuilt. It is the fragmentation and ethnic hatred. That, typically, never goes away. Iraq, especially, is a straight-edged, ethnically partitioned nation wracked with internal strife. And having oil wealth is unlikely to save the day. Fragmented countries with natural resources often do worse because civil war rages over who gets to keep the money. ...

After Katrina, it was noted that the long-run economic impact of destructive natural disasters such as hurricanes is minimal in most cases (see "Rebuilding After Natural Disasters"). Just want to add the obvious that, even if there is a full economic recovery for a country, some costs of war or natural disasters will persist. For example, there will be people who will never fully recover from the terrible losses they suffered during the war housed and working in those brand new buildings. It's not so clear that "In the long run, things return to normal" for them.

    Posted by on Thursday, July 20, 2006 at 02:16 AM in Economics, Iraq and Afghanistan | Permalink  TrackBack (1)  Comments (40)


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