The Economic Devastation: War Beyond the Battlefield

Long ago, Einstein once said, "I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones." War often has far-reaching consequences that extend beyond the battlefield, affecting everything from social structure to cultural identity. Families are torn apart; traditional gender roles shift, and historical landmarks are destroyed because of war. However, one of the most significant and far-reaching impacts of war is on the economy, both positively and negatively. Even though war provides a temporary economic boost through increased military production and spending, its long-term consequences, including fear, infrastructure destruction, human capital loss, decrease in foreign and domestic investment, inflation, and trade disruption, ultimately ruin a nation's economic growth and development.

War always creates fear among people, which impacts the long-term trust in the government. People are scared and unsure about their future because of war. During wartime, people, especially young adults, are terrified and mentally traumatized. According to Kecmanovic, "Wars disrupt the lives and professional development of young people who, by choice or otherwise, have to serve in the military during war" (Kecmanovic 992). Young adults engaged in war and violence at a very young age are mentally abused throughout their lives. Researchers also found out that war can lead to a significant increase in the number of students who drop out of school (Assefa, Yalalem, et al. 1). This statement reflects the poor living and educational condition of children who grew up near areas affected by war. In moments where there is fear and uncertainty in fulfilling the basic needs of life, parents also tend not to send their children to school. A study also mentions that in the recent Israel-Palestine war, approximately 346 schools have been destroyed, and the Palestinian Ministry of Education has also reported the deaths of over 4327 students, 231 teachers, and 94 professors because of war (Al Jazeera). The fear of what might happen spreads to everything else as well. When people are worried about being safe and having enough food and shelter, they're less likely to invest their money in things that will take a long time to pay off. Businesses don't grow as much as their potential, and people don't spend as much money as they want. All this slows down the economy and makes it harder for a country to get ahead.

Fear and uncertainty created by war lead to a decrease in investment, both domestically and internationally, hindering economic growth and development. Instead of people putting their savings towards long-term investment goals, they prefer to hold onto cash they can readily access. The hoarding of cash can even lead to bank runs, where a large number of people withdraw their money all at once. The recent collapse of Silicon Valley Bank, for example, highlights the vulnerability of financial institutions during periods of panic (Hugh Son). When people lose trust in the banking system, it discourages investment even further. The lack of investment, both from individuals within the country (domestic) and from outside investors (foreign), weakens the overall economy of the country and disrupts trade. Businesses struggle to find the capital they need to expand, and overall economic activity slows down. This fear spills over into the stock market as well. Researchers Durand, Robert and others also highlight that when people are fearful and panicked due to the effects of war, they often withdraw their investments, leading to a drop in the stock market index (Durand, Robert B., et al 1). This finding also emphasizes the idea that when people no longer have trust in their higher authorities, such as the government or financial institutions, they tend to keep liquid cash with themselves, in the case of emergency situations. Very recently, on average, Asia's stock market was also down 2.6% right after Israel launched missiles on Iran (Narioka, Kosaku). The sudden decrease in the stock market further proves that war creates fear among people and affects the economy of a country. A falling stock market is also a significant indicator of slowing or even negative economic development. The decline in the country's stock index and devaluation of currency also discourage further investment, creating a cycle of fear, disinvestment, and economic decline that hinders long-term economic growth.

The economic devastation caused by war extends far beyond a simple lack of investment, involving infrastructure damage, disruption of trade, and long-term consequences that significantly hinder economic growth and stability. The physical destruction of infrastructure, the loss of skilled workers, and the disruption of trade all act as crippling forces to an economy. War often damages transportation networks like roads, bridges, and railways, making it difficult to move goods and resources. It not only affects the normal transportation of goods but also seriously hinders import-export of a country. As also found by one paper, export is one of the most important contributing factors to drive the growth of gross domestic product (GDP), which can directly affect the economy of a country (R, Werner and Josephine 1). The finding also proves that war, hindering export businesses, can seriously affect the economy of the country. During the Russia-Ukraine war as well, the GDP of Russia fell about 1.5 percent further affecting the entire global economy (Caldara et al.). Communication systems like power grids and internet connections can also be targeted, hindering business operations and information flow during war. During the Russia-Ukraine war, Russian authorities restricted internet and mobile connections in the occupied area, further affecting the economic growth of the country. Stats Prybytko, the head of mobile broadband development in Ukraine's Ministry of Digital Transformation, also states, "The first thing that the Russians do when they occupy these territories is cut off the networks." This statement reflects the emotions of Ukrainians living in the sanctioned area who were affected due to war. Russia, knowing that communication and network are important services in order to survive, made the first damage to the network. During war, vital production facilities, such as factories and refineries, are also destroyed, further ruining a nation's ability to produce goods and services. During the Syrian Civil war as well, continuing bombing of the region severely damaged the country's oil infrastructure, leading to a sharp decline in oil production and exports, which also caused price hikes in the international oil market, further affecting the long-term economy (Narioka). This statement also further warns us of the effects of war and consequences after war, which can be deadly serious, affecting the economy.

Beyond the immediate destruction, war also disrupts a nation's workforce through displacement of people and disruptions to education, affecting its future economic potential. Soldiers, civilians, skilled workers, and innovators—all are lost or displaced by war. Armed conflict compels civilian populations to abandon their residences and workplaces, triggering mass displacement within national borders. During this time, a substantial population moves from one part of the world to another, disrupting established labor markets and creating a shortage of skilled and unskilled workers for businesses. Displaced families also face significant challenges in re-establishing their livelihoods, further compounding the economic hardship in the country. Educational institutions are also often caught in the crossfire, leading to disruptions in learning and skill development. A study by Hameed et al. (2023) found that war-torn countries experience a significant decline in educational attainment, impacting the future availability of a skilled workforce (Hameed et al. 2). These findings also indicate that war causes skilled workforce to move beyond their country, directly affecting countries' long-term economic development. The loss of human capital, the skills and knowledge of the population, disrupts innovation and productivity, hindering a nation's ability to compete in the global market, which eventually affects the country's economy in the long term.

The sanctions and trade restrictions imposed during wartime also ruin a nation's economic activity and integration into the global market, hindering long-term growth. Fear and the post-traumatic effects of war often lead countries to isolate and impose sanctions on the nation waging war. A prime example is the recent sanctions imposed on Russia during the Russia-Ukraine conflict. These sanctions, coupled with isolation efforts by other countries, halted Russia's ports, transportation, and trade flow (Sanctions on Transport). The Russian Ruble also devalued almost 50% during the war, further contributing to economic instability (Lyócsa and Plíhal). This widespread uncertainty discourages foreign investment and disrupts existing trade partnerships, as evidenced by the decline in foreign direct investment documented in a 2023 report by the International Monetary Fund (IMF) titled "The Long-lasting Economic Shock of War." Furthermore, a 2022 World Bank study titled "The War in Ukraine: Economic Consequences" found that trade restrictions and sanctions significantly decrease a nation's export and import volumes (Rogoff). This statement also further reveals the amplified effect of war on the economy. In 2015, similar to Russia and Ukraine, Nepal was also severely affected by a blockade by India. As Nepal is a land-locked country, sharing India as a border from three different sides, and China's rocky mountains on the north, Nepal's only easiest way to import and export international goods is through India. During the 2015 Nepal-India blockade, both nations, but mostly Nepal, were affected by it, hindering economic growth. A study also highlights that the blockade has consequences on transportation, production, and distribution of medicines, and other essentials, limiting the provision of basic health and emergency services leading to decreased quality of care and putting patients at risk of increased morbidity and mortality. The researcher also states in a paper, "The loss because of the Nepal-India blockade is estimated to cost more than $5 billion" (Lamichhane 1). This blockade was not a result of severe armed war, but a simple mutual misunderstanding between Nepal and India. This incident and paper also indicate that a simple misunderstanding between two nations can lead to misinterpretation in countries' foreign relationships, causing a blockade which seriously affects the economy in the long run. The severing of a nation's ties to the global marketplace, coupled with supply chain disruptions and price hikes for essential goods and commodities (like gas, wheat, gold, and crude oil), as witnessed during the Russia-Ukraine conflict and Nepal-India blockade, triggers a cascade of negative effects on its economic health.

The economic consequences of war extend beyond the disruption of trade and directly impact a nation's financial well-being. One prominent effect is inflation, a rapid rise in the prices of goods and services. During the recent Russia-Ukraine war, experts claim that the war contributed to the rise in global inflation by about 1.3 percentage points (Caldara et al.). War can trigger inflation through several mechanisms. Disruptions to supply chains caused by damaged infrastructure, sanctions, or displacement of workers can lead to shortages of essential goods, pushing prices exponentially. On top of that, governments often increase spending to finance war efforts, injecting more money into the economy and potentially exceeding its productive capacity, as claimed by researchers as well (Kim, Sung Woo 502). The increased money supply, coupled with a decrease in available goods, can also contribute to inflation, further disrupting the economy of a country. A recent example is the ongoing conflict between Russia and Ukraine, which has disrupted wheat exports from both countries, leading to global food shortages and price hikes (World Bank Blogs). Also, a nation's currency depreciation, as seen with the devaluation of the Russian Ruble during the Ukraine conflict, can further exacerbate inflation. When a currency weakens, it takes more of that currency to buy the same amount of imported goods, making them more expensive for consumers. These combined factors—isolation, reduced investment, and currency depreciation—disrupt global supply chains, causing hyperinflation, a situation characterized by a rapid and persistent rise in the prices of goods and services

To combat inflation, central banks, the institutions responsible for monetary policy, may raise interest rates, directly affecting the long-term economy of the country. After the Russia-Ukraine war, Russia raised the interest rate to 16%, and Ukraine's was even higher, around 25%, right after the war (The Wall Street Journal). Higher interest rates make it more expensive to borrow money, which can discourage spending and investment, ultimately slowing down economic activity and potentially tamping down inflation (Shaukat, Badiea, et al. 2). Raising interest rates hinders economic growth, as businesses are less likely to borrow money for expansion or investment projects. A peer-reviewed paper by Daniel and Adedeji also claims that interest rate hikes create the economy to slow down in both the short and long term (Daniel, Adedeji 36). War also often leads to a decline in Gross Domestic Product (GDP), the total value of goods and services produced in a country. Because of uncertainty and instability caused by war, there is mass destruction of infrastructure, displacement of workers, and a decrease in business activity, which affects the economy in the long run. A study by the Kiel Institute for the World Economy also estimated that the Russia-Ukraine war could reduce Ukraine's GDP by 35% in 2022, which is a serious problem for the economy (Kiel Institute for the World Economy). This data also suggests that if left unchecked, the economic consequences of war can create a deadly cycle of poverty and instability, making it even more difficult for nations to recover after war.

Beyond the economic devastation, war causes a serious human cost, destroying families and causing deep emotional scars, hindering a nation's ability to rebuild after war. Warfare tears families apart through death, displacement, and forced migration. Spouses lose partners, children lose parents, and siblings are separated. A study by the Centers for Disease Control and Prevention (CDC) published in 2020 found that children who experience the loss of a parent or sibling are more likely to suffer from depression, anxiety, and post-traumatic stress disorder (PTSD) (Centers for Disease Control and Prevention, 2023). The economic hardship caused by the loss of a breadwinner further compounds the emotional trauma. The long-lasting psychological effects can significantly affect a child's development and future opportunities, impacting not just the immediate family but potentially future generations. The devastating human cost can also cause damage to society and hinder a nation's ability to heal and rebuild after war. The emotional and social costs of war extend far beyond the battlefield and ultimately undermine a nation's long-term security and prosperity.

While arguing that war affects the economy of a country badly, it is also important to acknowledge that war may provide a temporary economic boost in the short run. During war, governments increase military spending, leading to an exponential increase in the production of mass weapons for defense contractors, which creates job opportunities in factories and related industries. A research paper also found out that the employment rate of men aged 20 was significantly higher during war (Kecmanovic 1006). During the initial phase of the war, governments also inject a large amount of money through donation, grants, or even direct assistance to allied nations, which will increase liquidity for the short term. After the announcement of the war, there could also be an increase in the stock price of defense firms or companies that produce war equipment and fighter jets, such as Lockheed Martin, RTX, Boeing (Yahoo Finance). Commodity prices such as gold and silver also skyrocket after the announcement of the war because these are considered one of the safest investments during war, which will directly benefit the shareholders and companies (US Gold Bureau). Additionally, the winning side of a war may also experience a short-term hype of wealth and power. For instance, the United States' victory in World War II positioned it as a global leader and jumpstarted technological advancements like nuclear power, though at a devastating human cost. However, these short-term gains are overshadowed by the far-reaching negative consequences that war inflicts on an economy.

While war may offer a temporary economic boost through inflow of spending on military activities, its long-term consequences are disastrous. Fear and panic caused by war restrict people from spending money, and physical destruction damages buildings and infrastructure, hindering productivity of a country. The displacement of skilled workers and disruption of education further affect a nation's economic potential. Trade, a backbone of the modern economy, is also destroyed by war as sanctions and isolation sever ties and supply chain disruptions create scarcity and inflation. Despite short-term gains, the immense human cost and long-lasting economic devastation leave a nation struggling to rebuild, not just its infrastructure, but the very foundation of its economic prosperity. Recognizing the correlation of war with economics goes beyond the tangible impacts we see; it's crucial to raise awareness of the underlying effects. By understanding these impacts, we can strive for a peaceful future where both the economical and physical consequences are known and considered, ensuring sustainable growth and stability.