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We examine the sector‐specific distributive effect of war in the US economy. We argue that war generates sector‐specific distributive effects via demand‐side and supply‐side mechanisms. We also claim that war's distributive effects materialize over time. Our empirical analysis utilizes a panel data set with 22,354 U.S. firms for the period from 1960 to 2007. It probes the impact of the U.S. Government's war making on firm performance in the U.S. arms and non‐arms (hybrid and civilian) sectors in both the short and long runs. Our analysis shows that war does not always affect U.S. non‐arms sectors adversely. Indeed, war exercises a positive total long‐run effect for these sectors. It also finds that the supposedly positive distributive effect of war for U.S. arms sectors proves weaker than analysts generally assume. Finally, it demonstrates that war‐induced demand and supply shocks can explain these results. Overall, our research sheds light on a relatively understudied aspect of war and advances the general understanding of the political microeconomy of war making.

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