Macroeconomics of War and Recovery

This paper studies the macroeconomic dynamics of conflicts and post-conflict recovery using a newly assembled global dataset covering 194 countries, including 170 conflict onsets and 158 conflict terminations, over the period 1946–2024. Using a local-projection difference-in-differences framework complemented by geocoded firm-level evidence, we trace the evolution of macroeconomic aggregates around conflict onset and termination. We make four contributions. First, output losses from conflicts typically exceed those associated with banking, currency, and sovereign debt crises, as well as severe natural disasters. Second, external-sector dynamics constitute a central mechanism through which wars amplify macroeconomic challenges, despite policymakers’ efforts to contain the war shock. Third, post-conflict recoveries are slow and uneven and depend critically on the durability of peace: conflict resumption stalls recovery prospects, while sustained peace produces only gradual recoveries relative to wartime losses. These recoveries are typically labor-led, while capital accumulation and productivity remain subdued. Fourth, firm-level evidence confirms this labor-led recovery and points to persistent financial constraints that hinder capital rebuilding during the postconflict period.