Cost of War: Economic Implications of Maritime and Territorial Disputes

Abstract

Territorial and maritime disputes continue to figure prominently in international affairs. For instance, in the run up to the recent Hague ruling on the disputed territories in the West Philippine Sea/South China Sea, the potential risks of conflict appear to have increased. Should conflict break out, the implications will likely have widespread economic ramifications not just for the Asian region but also globally. Drawing on studies on the economics of conflict, this paper reviews the literature in this area and examines an array of economic costs associated with territorial and maritime disputes. These include adverse effects on certain economic and development outcomes arising from possible armed confrontation, with some of these possibly lingering in the aftermath of conflict. There are also costs associated with territorial disputes per se, emphasizing how these disputes also have implications on the livelihoods of resource users in the disputed areas. A clearer understanding of these economic links could help inform and motivate policymakers on mitigating the risks of conflict. By our estimates, a military conflict in the West Philippine Sea/South China Sea involving China, the Philippines and possibly other states with stakes in the region could result in economic damage, in terms of foregone average trade flows (expressed in 1985 US dollars), ranging from US$ 909.285 million to US$ 98.821 billion.