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Whether a state emerges as a winner or loser from a military conflict is significantly determined by its financial resources. This has been shown for the first time in a new empirical analysis of the Kiel Institute for the World Economy. In their comprehensive study of more than 700 conflicts between 1977 and 2013, the researchers have estimated the causal effect of increased military spending on the outcome of wars. The effect is substantial: if one party to the conflict increases its military spending by 10 percent of GDP, the likelihood of military success rises by 32 percentage points.
“Our research shows how financial flows can shift the balance of power in interstate conflicts,” explains Moritz Schularick, president of the Kiel Institute and co-author of the study Who Wins Wars? (https://www.ifw-kiel.de/publications/who-wins-wars-33655/?ADMCMD_simTime=1737522...). “A sudden increase in government revenues, for instance from commodity sales, allows governments to ramp up their military spending and significantly enhance their chances of victory. For the first time, we can causally claim: countries win wars because of their financial resources.”
The authors quantified this effect by examining varying revenues from commodity sales during 700 wars between 1977 and 2013. They distinguish between three possible outcomes: victory, draw, and defeat.
When government revenues from commodity sales increase by 10 percent of GDP, the likelihood for the respective conflict party to end the war in the next higher category – such as a draw instead of a defeat or a victory instead of a draw – increased by 3.2 percentage points.
Empirically, only one-tenth of windfall gains actually flows to the military. Causally, the authors demonstrate that if military spending increases by 10 percent of GDP, the chances of a conflict party ending the war in the next higher category increase by 32 percentage points. It does not matter where the additional funds come from, whether from rising commodity gains or financial aid.
Russia’s warfare likely to have significantly benefited from increased oil and gas revenues
The results of the study are highly relevant for today’s geopolitics. It can be assumed that Russia’s warfare has significantly benefited from increased revenues due to rising oil and gas prices. This has enabled Moscow to boost its military spending and strengthen its war capabilities. At the same time, the study highlights that Western financial aid to Ukraine is urgently needed to prevent its defeat, but also that the withdrawal of such aid would greatly hinder Ukraine’s ability to defend itself successfully.
A striking example from the past is the conflict between Libya and Chad in the 1980s. Due to high oil prices, Libya was able to demonstrate its military superiority and achieve decisive victories. However, when oil prices collapsed, the country lost the financial resources needed to continue its warfare and was eventually defeated. This case illustrates how dependent military success is on fiscal resources.
“Economic strength is a decisive factor in the history of conflicts and in the international security policies of the present,” says co-author Jonathan Federle, researcher at the Kiel Institute. Positive inflows can boost military capabilities just as much as negative ones can diminish them. Our study shows how closely economic strength and military effectiveness are intertwined.”
Read study: “Who Wins Wars?”: https://www.ifw-kiel.de/publications/who-wins-wars-33655/?ADMCMD_simTime=1737522...
Media Contact:
Mathias Rauck
Chief Communications Officer
T +49 431 8814-411
mathias.rauck@ifw-kiel.de
Kiel Institute for the World Economy
Kiellinie 66 | 24105 Kiel | Germany
Chausseestraße 111 | 10115 Berlin | Germany
T +49 431 8814-1
E info@ifw-kiel.de
www.ifw-kiel.de
Prof. Dr. Moritz Schularick
President
T +49 431 8814-259
president@ifw-kiel.de
Dr. Jonathan Federle
Kiel Institute Researcher
jonathan.federle@ifw-kiel.de
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