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The Economics of War and Peace

A new report from the World Bank highlights the devastating economic consequences of civil war.
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Damaged buildings in the rebel-held Ansari district of the northern Syrian city of Aleppo. (Photo: Baraa Al-Halabi/AFP/Getty Images)

Damaged buildings in the rebel-held Ansari district of the northern Syrian city of Aleppo. (Photo: Baraa Al-Halabi/AFP/Getty Images)

On Monday, four hospitals and a school in Syria were bombed. The United Nations and various countries have described the attacks as flagrant violations of international law that could jeopardize the fragile temporary ceasefire scheduled to begin in the country later this week. The incidents mark the latest in a string of attacks on the country's health infrastructure—Physicians for Human Rights says there have been 336 attacks on medical sites in Syria, resulting in the deaths of 697 health-care workers. That has huge implications not only from a human rights standpoint, but also from an economic one.

Last month, the World Bank released its quarterly economic brief for the Middle East and North Africa region. The Bank's short-term outlook for the region is "cautiously pessimistic," with low regional economic growth expected due mostly to low oil prices and ongoing violence in the region. The report is most interesting, however, for its detailed and sobering discussion of the devastating economic consequences of war—attacks such as Monday's have economic consequences that last far beyond the end of the conflict.

As anyone who has read a newspaper in the last few years likely already knows, the civil wars in Syria, Iraq, Libya, and Yemen have caused significant damage to the affected countries. Libya's oil exports have dropped to one-third of their pre-civil war levels, while oil and gas production in Yemen has essentially ceased since the onset of its civil war. It is difficult to accurately assess the full extent of the physical devastation, but the World Bank has been at work on preliminary assessments. In Syria, the Bank estimates that the damage inflicted in six major cities, across seven major sectors (housing, health, education, energy, water and sanitation, transport, and agriculture) through the end of 2014 totals $3.6-$4.5 billion. Damage to four of Yemen's major cities across those same sectors, through October 31, 2015, is estimated at $4-$5 billion. In Iraq, a "rapid damage assessment" in four cities recently liberated from ISIS suggests $362.5-$443 million worth of damage across four key sectors.

In Syria, the Bank estimates that the damage inflicted in six major cities totals $3.6-$4.5 billion.

"Syria and Iraq have seen per capita income in constant terms decline by 23 percent and 28 percent relative to the levels that could have been achieved had the war not broken out," the report concludes, referencing research on the economic effects of the war in Syria conducted by World Bank economists. "The costs directly attributed to the war are 14 and 16 percent reduction in per capita GDP for Syria and Iraq, respectively."

Citizens of the affected countries, whether they have fled to refugee camps or remained in place, face food insecurity, poor access to health care and vaccines, dismal economic prospects, and a significantly weakened education system—all factors that will hamper economic development and growth for decades to come. In Yemen, for example, 47 percent of school-aged children are not in school. The U.N. estimates that more than 13 million school-aged children are not enrolled in school in Syria, Yemen, Iraq, and Libya.

As grim as these statistics are, they don't begin to capture the long-term consequences of these wars. Even if the various conflicts battering the region were to end tomorrow, recovery would be far from immediate. It takes years to re-build infrastructure, to convince the displaced that it's safe to return home and re-assemble both their lives and their local economies, to persuade investors to return funds to the country. And a growing body of research indicates that deprivation in childhood and in utero leaves permanent effects on children's health and cognitive abilities.

"Despite these severe effects of civil war the restoration of peace does not necessarily produce a dividend," Paul Collier, an economist, wrote in a 1999 paper on the effects of civil wars on economic growth. "Peace does not recreate either the fiscal or the risk characteristics of the pre-war economy: there is a higher burden of military expenditure and a greater risk of renewed war."

The currently besieged economies of the Middle East and North Africa region have at least one thing going for them when it comes to recovery: They've got oil. In a 2014 working paper, Randa Sab, an economist at the International Monetary Fund, found that oil-rich countries recover from war at a much faster rate. "For oil-rich economies such as Iraq and Kuwait, where oil production represented a significant part of aggregate supply, output recovery happened faster as oilfields were reactivated relatively quickly," Sab writes. "Furthermore, the fact that most oil production was exported allowed post-conflict countries, such as Iraq and Kuwait to obtain current account surpluses in a relatively short period and recover their international reserves."

The World Bank report also highlights one tantalizingly hopeful scenario: If the civil wars in the Middle East and North Africa region result in more democratic governments (an outcome that unfortunately seems increasingly unlikely given the complexity of the conflicts), economic growth in those countries might actually surpass pre-conflict levels. Last December, the economists Daron Acemoglu, Suresh Naidu, Pascual Restrepo, and James A. Robinson released a working paper on the economic effects of the spread of democracy between 1960 and 2010. They found that democracy "increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public goods provision, and reducing social unrest." All told, their research suggests "a country that transitions from nondemocracy to democracy achieves about 20 percent higher GDP per capita in the next 25 years than a country that remains a nondemocracy."

It's unclear if this research is applicable to the current conflicts in the Middle East, which have been particularly brutal and destructive—many allege that the Syrian government and its Russian backers have been intentionally targeting hospitals and schools, which may make it difficult for any future democratic government in that country to quickly improve schooling or improve health services. Regardless, it's clear that Syria and the other countries in the region have a long road to economic recovery ahead of them.