How can the material cost of wars be calculated?

2024-02-18 13:07:00, Blog CNA

By 2026, Ukraine alone will lose the equivalent of about $120 billion in economic output due to Russian occupation. The damage to fixed capital, that is to tangible assets such as machinery, systems and factory buildings, is much greater - nearly a trillion dollars.

This follows from calculations published on Wednesday by researchers from the Kiel Institute for the World Economy (IfW) and the University of Tübingen.

The economic burden on third countries not directly involved in the war is also significant. According to the study, they will have economic losses of a total of about 260 billion dollars within five years (2022-2026), of which about 70 billion dollars of losses will be incurred by the countries of the European Union, while about 15 to 20 billion dollars of losses will be there is only for Germany.

Historical knowledge

The study is based on an analysis of historical data covering more than 150 wars since 1870. From this, the Kiel researchers derive various data, such as how much gross domestic product falls on average within five years of war or how much inflation increases.

How can the material cost of wars be calculated?

"The calculations are based on the costs of 'typical' interstate wars in the past. Depending on the duration and intensity of the war, more or less serious scenarios, meaning conflict outcomes, are conceivable," says Jonathan Federle, researcher at IfW Kiel and lead author of the study.

"The results and effects that we calculate and extrapolate to other countries primarily take into account trade ties caused by geographic proximity and the size of the respective economy in which the war breaks out," Federle continued.

But what if Taiwan, Iran...

Using data and parameters, researchers can also provide estimates of the economic damage of hypothetical wars, that is, wars that never happened. As for example with Taiwan: China claims that the island is part of its territory and has repeatedly threatened to take it by force if necessary.

In Taiwan, a "typical war" lasting five years would result in a loss of $2.2 trillion in global gross domestic product (GDP). Because the country is closely linked to the entire global economy through its chip industry, IfW researchers point out that the actual costs of the war could be significantly higher.

Or take Iran as an example: if the Islamic Republic were to become a war zone, the cost in terms of lost GDP to the global economy could be as high as $1.7 trillion over a five-year period. Iran is currently not as involved in world trade, partly because of sanctions. Therefore, IfW researchers assume that the damages may be such.

How can the material cost of wars be calculated?

A free online computer program

In addition to the published study, the Kiel researchers also developed a computer program that is freely available online. Here the damage from the various wars can be calculated. Before use, the screen informs you that the figures are based on historical averages and refer only to economic costs in terms of GDP and capital.

The warning aims to inform the users of the tool about the limitations of the research, namely that the transfer of historical values ??into the future is only conditionally correct.

"But overall, the calculations show once again the economic value in peacetime and how catastrophic real war can be," says IfW president Moritz Schularick, summarizing the study's results.

His conclusion: strengthening one's military power and credible deterrence policy, which makes external attacks less likely, make sense from an economic point of view./ DW