India and Pakistan Go Nuclear: The Economic Costs for India, Pakistan — and China

Abstract

Quantitative estimates show that India's nuclear tests caused important economic damage to India and its neighbors, Pakistan and China. Pakistan's tests caused further economic damage to all three countries. In response to India's tests, India's stock market fell by 7.26 percent, Pakistan's by 10.59 percent and China's by 2.70 percent. In response to Pakistan's tests, India's stock market fell by another 5.57 percent, Pakistan's by 16.82 percent and China's by 3.93 percent. Overall, the two countries' tests caused India's stock market to fall by 12.83 percent, Pakistan's by 27.41 percent and China's by 6.63 percent. Some argue that going nuclear increased India and Pakistan's national security and their international political standing. In the financial markets' opinion, these tests caused major reductions in both countries' economic security, and harmed China's economic security. The tests had no important effects on the Group of Ten countries' stock markets; thus, the tests' economic effects seem for the moment of be confined to southern Asia.