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Working Paper 34389

DOI 10.3386/w34389

Issue Date October 2025

This paper provides systematic evidence on the macroeconomic consequences of war using a new dataset covering 115 conflicts and 145 countries over the past 75 years. We document three main findings. First, conflict generates large and persistent real effects: real GDP falls by 13% on average with no recovery even after a decade, while investment collapses as financial frictions reduce domestic credit. The drop in real activity is more pronounced for civil wars than it is for interstate conflicts. Second, government finances deteriorate as revenues contract while expenditures remain stable, thus raising primary deficits. Real government debt also declines, and governments shift 1.2% of GDP towards short maturities. Third, governments rely heavily on inflation to finance their deficits: the price level and money supply both rise by nearly 50%, eroding debt and generating seigniorage but also depressing investment and raising the cost of imported capital goods.

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Efraim Benmelech and Joao Monteiro, "The Economic Consequences of War," NBER Working Paper 34389 (2025), https://doi.org/10.3386/w34389.

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