The Impact of War on Resource Allocation: 'Creative Destruction' and the American Civil War

B. Zorina Khan

No 20944, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What is the effect of wars on industrialization, technology and commercial activity? In economic terms, such events as wars comprise a large exogenous shock to labor and capital markets, aggregate demand, the distribution of expenditures, and the rate and direction of technological innovation. In addition, if private individuals are extremely responsive to changes in incentives, wars can effect substantial changes in the allocation of resources, even within a decentralized structure with little federal control and a low rate of labor participation in the military. This paper examines war-time resource reallocation in terms of occupation, geographical mobility, and the commercialization of inventions during the American Civil War. The empirical evidence shows the war resulted in a significant temporary misallocation of resources, by reducing geographical mobility, and by creating incentives for individuals with high opportunity cost to switch into the market for military technologies, while decreasing financial returns to inventors. However, the end of armed conflict led to a rapid period of catching up, suggesting that the war did not lead to a permanent misallocation of inputs, and did not long inhibit the capacity for future technological progress.

JEL-codes: N11 N4 O3 O51 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-gro and nep-his
Note: DAE POL PR
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Citations: View citations in EconPapers (4)

Published as B. Zorina Khan, 2015. "The Impact of War on Resource Allocation: “Creative Destruction,” Patenting, and the American Civil War," Journal of Interdisciplinary History, vol 46(3), pages 315-353.

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