The Economic Costs of War

How economists measure the damage wars cause, from destroyed buildings and lost lives to disrupted trade and long-lasting harm to growth.

Wars are human tragedies first. They are also economic catastrophes. Economists try to measure their costs to understand the full damage and to inform decisions about prevention and recovery.

Direct costs

The most visible costs are direct:

Loss of life and injury: the deepest cost, which also removes workers, parents and skills from the economy.
Destruction of physical capital: homes, factories, roads, bridges, power plants and farmland.
Military spending: resources used for weapons and soldiers instead of schools, hospitals or investment.

Indirect costs

The indirect costs are often larger and last longer:

Displacement: people forced from their homes lose jobs, land and businesses.
Lost education and health: children who miss school or suffer malnutrition carry the damage into adulthood, reducing human capital.
Disrupted trade and investment: businesses close, foreign investors leave, and trade routes are cut.
Weakened institutions: war can damage courts, governments and trust between groups.

How big are the costs?

Studies of civil wars have found that economies involved in them typically grow much more slowly than they would have otherwise. The World Bank’s 2011 World Development Report estimated that a major civil war costs the average developing country the equivalent of roughly 30 years of GDP growth. Neighbouring countries also suffer, through lost trade and refugee flows.

Ukraine's damage assessment

After Russia's full-scale invasion of Ukraine in 2022, the World Bank, the United Nations, the European Commission and Ukraine's government produced regular estimates of the cost of reconstruction. By early 2025, their joint assessment put Ukraine's recovery and reconstruction needs at more than 500 billion dollars, several times the country's pre-war annual GDP.

Long-lasting effects

Some effects last generations. Research on countries bombed heavily in the Second World War found that cities often recovered their populations and economic activity within a few decades, a sign of resilience. But the loss of people, especially educated people, and damage to institutions can shape a country’s path for much longer.

Thinking war boosts the economy

It is sometimes said that war is good for the economy, pointing to rising production during the Second World War in the United States. But that economy was not the one being bombed. For countries where fighting takes place, war destroys lives, capital and institutions. Even for others, the resources spent on war could have been used productively elsewhere.

Key takeaways

War's direct costs include lives lost, destroyed capital and military spending.
Indirect costs include displacement, lost education, disrupted trade and weakened institutions.
A major civil war can cost a developing country decades of growth.
The idea that war is good for the economy ignores the destruction and the lost alternatives.