In a continuing review of the Global Peace Index
, produced by the Institute for Economics and Peace
, we look now at the economic impact that violence has on economies around our world. The economic impact of violence refers to the expenditure and effect of containing, preventing, and dealing with the consequences of violence. The report measures the combined effect of both direct and indirect costs of violence and takes into account the multiplier effect. The direct costs of violence are immediate consequences that impact the victims, perpetrators, and public systems–including the health system, the judicial system, and public safety. Direct costs can include medical costs for victims, destruction caused by violence, and costs associated with security and judicial systems. Indirect costs are longer term consequences of violence, including loss of productivity, psychological effects, and the impact of violence on the perception of safety or security in a community. The multiplier effect illustrates the extent to which the wider economy grows with the injection of new expenditure. Included in the measurement of the economic impact of violence is the calculated additional economic activity that would have occurred if it had not been for the costs of violence that society experiences.
The economic impact of violence to the global economy was $14.1 trillion in 2018, equivalent to 11.2% of the world gross domestic product (GDP), or $1,853 per person. This reflects the first improvement in the economic impact of violence since 2012, a 3.3% decrease, or $475 billion, from 2017 to 2018. From 2012 through 2017 the economic impact rose 16%, the increase mostly due to the war in Syria and the aftermath of the Arab Spring in Libya and Yemen, as well as the impact of conflicts in Afghanistan and Iraq. The decrease in 2018 is a result of decreased armed conflict in Syria, Colombia, and Ukraine.
The ‘Prosperity Gap’:
The greatest economic impact of global violence is the widening of the ‘prosperity gap’ between the most and least peaceful countries. Countries with low levels of peace are more likely to have political instability and macroeconomic volatility. This creates major obstacles for investors and businesses, disincentivizing business ventures in that state. Therefore, greater levels of violence correlates with lower levels of employment, investment, and economic productivity. Incidents of armed conflict and political unrest discourage investment by creating safety and security challenges, while economic risks such as financial imbalances, currency devaluation, and high inflation depresses investment. These less peaceful countries are often unable to get out of the so-called ‘conflict trap’, a cycle of economic stagnation, poverty, unemployment, and inflation resulting in political instability and unrest which in turn exacerbate poor economic performance–and so on. Because more peaceful countries have increasing growth rates, while less peaceful countries have stagnated growth rates, there is a slowly but surely growing ‘prosperity gap’ between states depending on their level of peacefulness.
The Economic Impact of Peace:
Conversely, peaceful societies see incentives for economic productivity. They are able to focus their time and resources on more productive areas, such as health, business investment, education, and infrastructure, instead of defending themselves from violence. Interest rates and inflation rates are lower and more stable in more peaceful countries. Foreign direct investment is more than twice as high in peaceful countries than in violent ones. If the least peaceful countries in the report experienced the same economic growth rate as the highest rated countries, the global economy would grow $13.87 trillion and the per capita GDP in the least peaceful countries could be up to $527 higher by the year 2030.
It is crucial not only to create peace building initiatives in volatile countries, but to also promote broad-based economic development alongside those initiatives. Poor infrastructure, low levels of human capital, and political unrest all prevent stable economic growth. Furthermore, creating an environment that is conducive to investment can reduce the incentive for, and likelihood of, violence. And in turn, a less violent society provides more incentives for investment, therefore, allowing a country to escape the ‘conflict trap’ and instead enter a cycle of growth and prosperity.
Not only is eliminating violence possible, it would be in the best economic interest of all global citizens. Resources like the GPI
provide us with useful information about the obstacles we face and what strategies are capable of successfully overcoming them. Keep an eye on this space for our fourth and final blog post on the Global Peace Index
, focusing on the concept of Positive Peace.