Working Paper: NBER ID: w20944
Authors: B. Zorina Khan
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.
Keywords: American Civil War; resource allocation; patenting; technology; innovation
JEL Codes: N11; N4; O3; O51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| American Civil War (N41) | temporary misallocation of resources (D51) |
| temporary misallocation of resources (D51) | reduction in geographical mobility (J62) |
| temporary misallocation of resources (D51) | shift into military technology markets (H56) |
| temporary misallocation of resources (D51) | decrease in financial returns for inventors (O39) |
| end of armed conflict (D74) | rapid recovery in technological innovation (O39) |
| American Civil War (N41) | altered existing opportunity sets (D80) |
| altered existing opportunity sets (D80) | incentives for entrepreneurial behavior (L26) |
| incentives for entrepreneurial behavior (L26) | diversion of inventive resources into military applications (H56) |