What is a War Economy?

A war economy centers on producing goods and services that support war efforts.

How Does a War Economy Work?

For example, if Country X spends most of its tax dollars on defense and/or uses most of the proceeds from borrowing money for maintaining military and defense efforts, Country X may be a war economy compared with, say, Country Y, which spends most of its tax revenue and borrowed money on infrastructure and domestic programs.

Why Does a War Economy Matter?

War economies can exist out of necessity if a country feels threatened and must make national defense its priority. War economies can also exist for cultural reasons.

Regardless of the reason, war economies sometimes show more technological, medical and industrial progress because there is a race to create systems, products, services and ideas that protect and defend better and/or more cheaply. War economies sometimes exist at the expense of domestic development and production, however.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.