Modelling the Economic Opportunity of Peace

Peace is more than just the absence of war, it’s an economic advantage. The Business and Peace Report 2024 by the Institute for Economics & Peace (IEP) reveals that preventing conflict could unlock immense economic gains across countries and sectors. Using synthetic modelling, the report shows how nations affected by prolonged violence could have achieved far stronger outcomes in GDP, trade, and investment had hostilities been avoided. As global instability continues to strain economies, this analysis highlights a crucial truth: peace fuels prosperity, while conflict drains it.

It also notes that if global violence were reduced by just 10%, around $1.75 trillion could be redirected every year into more productive economic activities, social development, and investment. As global instability continues to strain economies, this analysis highlights:  peace fuels prosperity, while conflict drains it.

The following analysis delves into the global economic cost of violence, models the potential gains from avoiding conflict, and examines the broader implications for business, investment, and development.

Global Cost of Violence in 2023

Conflict and violence continue to weigh heavily on the world economy. According to IEP estimates, violence cost the global economy $17.5 trillion in 2023, around 12.9% of global GDP, or roughly $2,200 per person. This figure captures not only the direct impact of conflict and crime but also the expenses involved in preventing, containing, and responding to violence, including the maintenance of international security structures. 

Global Economic Impact of Violence in 2023

• The estimated $17.5 trillion global cost in 2023 marks a 6.6% increase compared to 2021, reflecting both new conflicts and ongoing disruption from existing ones.
• This economic impact encompasses war, criminal violence, terrorism, and the maintenance of military and police forces, as well as the opportunity costs associated with diminished economic activity and lost human and physical capital.
• If global violence were reduced by just 10%, approximately $1.75 trillion could be redirected annually into more productive economic activities, social development, and investment.
• More peaceful countries consistently outperform less peaceful ones on core economic indicators like GDP growth, FDI inflows, currency stability, and innovation.

Modelling the Avoidance of Conflict

The Institute for Economics & Peace (IEP) used synthetic control techniques to compare actual economic indicators with projections in a hypothetical no-conflict scenario. The analysis covered eight countries that experienced conflicts lasting at least four years between 1970 and 2022. Key indicators measured five years after the onset of conflict included GDP, trade (imports and exports), foreign direct investment (FDI), capital formation, and household consumption. On average, the modelling reveals that:

• GDP would have been 25% higher five years after conflict began.
• Exports would have been 30% higher and imports 19% higher, resulting in healthier trade balances compared with actual conflict-affected figures.
• FDI inflows would have been 54% greater, with opportunity costs in capital formation at 41% and household consumption at 23% higher than observed realities.

Collectively, these indicators highlight the scale of economic opportunity lost due to protracted conflict.

Opportunity Cost Estimates: – Country Cases

While outcomes vary by country, the trend consistently shows economic underperformance following conflict:

• Libya experienced a 53% loss in GDP output five years after conflict onset, largely due to disruptions in key sectors such as oil production.
• Syria faced severe losses, with imports 60% lower, exports 80% lower, and total trade volume 72% below the modelled no-conflict scenario.
• Sierra Leone and Rwanda also suffered sharp declines, with only modest economic recovery in subsequent years.
• The economic cost of violence in El Salvador includes a GDP loss of over 25% within five years after the conflict, foreign investments dropping by more than 50%, and household consumptions declining sharply.

The average loss in total trade volume was 28%, with exports generally more affected than imports, as demand for essential goods persisted despite conflict.

Broader Economic Dynamics

The loss of business dynamism is not merely a matter of macroeconomic aggregates. Declines in new business formation, domestic credit, and investment confidence were observed, as war heightened uncertainty, risk, and disruption to entrepreneurship and innovation.

Implications for Peace Economics

Countries that avoided conflict would have experienced stronger GDP growth, better trade outcomes, higher capital investment, and more robust household consumption, suggesting a virtuous cycle in peaceful societies.

This modelling highlights not only the immediate economic costs of conflict but also the immense opportunities for business and development presented by peace. Sectoral impacts are particularly acute in industry and agriculture, where business growth, capital formation, and export potential are highly sensitive to instability.

This evidence provides a compelling economic case for peace as a strategic pathway to prosperity, especially for policymakers, investors, and business leaders evaluating long-term growth and development trajectories.

Conclusion – Peace as a strategic pathway to prosperity

The analysis clearly demonstrates that the economic costs of conflict extend far beyond immediate destruction, affecting trade, investment, consumption, and long-term development. By modelling hypothetical no-conflict scenarios, the Institute for Economics & Peace reveals the substantial opportunities lost when hostilities persist. Countries that maintained peace would have enjoyed stronger GDP growth, healthier trade balances, greater foreign investment, and more robust household consumption, creating a virtuous cycle of economic prosperity.

These findings provide a compelling case for viewing peace not merely as a social or political ideal, but as a strategic economic asset. For policymakers, investors, and business leaders, prioritising stability and conflict prevention emerges as a critical pathway to sustainable growth, development, and shared prosperity.