The Economics of Peace: Nobel laureate seeks to quantify the benefits enjoyed by countries free of conflict

Bangkok Post - Wednesday, December 08, 2004

Measuring a country’s wealth, product prices and income levels is standard fare for economists. But is maximizing wealth always the best policy? Is a wealthier economy, albeit one with a wide income gap, a more desirable outcome than a less well-off economy that has a smaller difference between social equality and economic equality?

While economic theory might be able to model and describe the possibilities of different choices, such questions have few obvious answers, judging from a panel discussion on Monday evening featuring Nobel laureate Clive Granger.

“Some countries have lower income levels, but a happier society and population. What should the focus be? Where does a society want to be?” Prof Granger rhetorically asked the small audience of economists, academics and activists.

“There are limits regarding the environment and resources. If every country says it wants 20% growth over the next 50 years, well, it couldn’t be done.”

As economies grow, wealth distribution typically widens. While economic growth does benefit the poor and reduce poverty, typically growth is most enjoyed by those at the top of the income ladder.

“Is a good economy one where the income distribution remains the same? Does it matter that there are wealthy people?” Prof Granger said. “And how do you best measure the well-being of an economy?”

Such questions, while provocative, may well have no answers, although there is certainly benefit to be gained from further discourse.

Prof Granger, the 2003 Nobel winner in economics, is in Thailand this week to deliver a lecture series under the BRIDGES programme, a project hosted by the International Peace Foundation to promote dialogue in support of world peace. Speakers involved in the programme, which started in late 2003 and will run through next April, include dozens of prominent international political leaders, artists and Nobel laureates.

Prof Granger spoke at Siam University yesterday and plans events at Bangkok and Chiang Mai universities today and tomorrow.

A professor at the University of California in San Diego, Prof Granger was awarded the Nobel with Robert Eagle for their work in the area of causality and cointegration, methods used in econometrics to analyse time series with common trends.

“I actually feel that I am more of a mathematician than an economist,” he said. “In some ways, it’s better. I take a much more skeptical viewpoint than many economists.”

Prof Granger will present a paper this week titled “The Economics of Peace”. In the paper, he notes that countries at peace typically enjoy social stability, lower risk and interest rates and policies that promote trade.

Unemployment is higher for countries at peace than countries at war, with lower investment and decreasing or stable government debt.

The opposite, countries at war, generally show dynamic social change, conscripted full employment, higher risk and interest rates and controlled prices. Trade may be constrained, exchange rates volatile and government debt rising, while investment levels and returns are high to compensate for higher risk.

Prof Granger noted that for peaceful countries, building strong trade ties with other countries was potentially one way to increase the cost of war for aggressor nations.

“How can an economy stay at peace? Trade is one way. And would people say to ensure continued peace?”

Further study will require more data and research into the preferences and desired outcomes of different societies.

“It’s often the case. You have an interesting idea, but there are no data available, or what data there are are unreliable,” Prof Granger said.