A Model Based Study: War's Consequences on Global Supply Chain Manipulating Developing Nations' Trading Pattern

Abstract

This paper uses a 3-sector theoretical model extending Jones 1971 model for a developing nation assuming that it is a small open economy which is not a part of war but a major trading partner of both the countries in conflict. However, geopolitical alliances generating from common interests, creates pressure on countries to be involved in the war in some way or the other. Usually, developing nations bear the brunt of war whether they are involved in it or not. War has caused and is causing both social and economic disturbance since the evolution of human kind. It affects the modern economy differently than it had affected the primitive economy when mankind was not fully evolved. Every war in history has affected the global economy either partially or completely. War is a shock that creates disruptions in worldwide trade pattern. This model reflects the effect of changes in the supply chain caused by war which is a shock component in the model. Changes in supply chain are accompanied by changes in price and output level. The manufacturing sector, in the model, imports intermediate inputs from the nations at war. Due to the existing scenario of the war there is an alteration in the price of the intermediate inputs, which changes the price of the finished product produced in the manufacturing sector. These finished products are exportable from the point of view of the developing nation producing it. These price changes lead to a total change in trade volume. This model shows the change in price of intermediate inputs during war situation which can be extended for war that has taken place in the real world. Data showing change in trade volume for different intermediate importable goods during the war period are used to describe the conclusion driven from the study. In order to attain social and economic stability it is essential to restore peace. Historically, it has been proven that war is inevitable. Developing nations bear the burden while the global superpowers reap benefits from the situation specifically in terms of trade, slowing down the growth and development of the developing countries.