Economics and Conflict : Moving beyond Conjectures and Correlations

Abstract

The theoretical and empirical literature on the reciprocal topics of economy and war have developed a fertile debate. Most contributions examine the liberal hope that growing economic bonds between or within nations reduce the risk of violent conflict, while an increasing number of studies also examine the destructive and redistributive effect of war, terrorism, and genocides. The article argues that most studies in the field do not provide clear microfoundations for the opportunity-cost arguments that are typically made to justify the deterring effects of increased economic interactions. To move the field forward, contributions need to focus more on how the relationship between business leaders and the government shapes decision making in periods of crisis. Recent advances have been made to understand the economic impact of massive political violence that can only be fully understood through the use of temporally disaggregated data.