Does armed conflict have an economic cost? Yes, and it's declining
Armed conflict is key to the declining economic cost of violence.
The economic impact of violence has improved for the first time since 2012, according to the Global Peace Index 2019. The area of armed conflict showed the largest improvement, decreasing by 29 per cent between 2017 and 2018.
Armed conflict encompasses a wide range of impacts that can be broken up into six categories – deaths as a result of external conflict, GDP losses from conflict, deaths as a result of internal conflict, refugees and internally displaced persons (IDPs), deaths as a result of terrorism, and injuries as a result of terrorism.
Conflicts have severe adverse economic impacts through the loss of life, the displacement of civilian populations, and disruption in economic activities. Widespread violence also destroys physical capital and infrastructure, leaving countries fragmented and devastated.
The economic impact of conflict deaths and losses from refugees and IDPs showed a marked decline, with a decrease of 19 per cent for conflict deaths and 12 per cent for losses from refugees and IDPs.
IEP’s model for measuring this economic impact considers lost production, consumption and investment for the country of origin of displaced persons or refugees, and includes spending by the United Nations High Commissioner for Refugees.
The cost of terror drops
One of the more notable areas of armed conflict showing an improvement was the economic impact of terrorism, decreasing by 48 per cent between 2017 and 2018.
The economic impact in 2018 was less than a third of the impact seen in 2014, with a drop from US$108 billion to US$31.2 billion. This cost of terrorism has steadily been on the decline since its peak in 2014 – notably timed with the ongoing defeat of Islamic State, with both Iraq and Syria seeing an improvement in their security situation as a result.
IEP’s model for calculating the cost of terrorism includes the direct and indirect costs of deaths and injuries. The direct costs associated with incidents of terrorism are those borne by the victims and their families, as well associated government costs. The indirect costs include lost productivity and earning as well as psychological trauma to the victims, their families and friends.