The Allocative Cost of War: A View to a Kill…ing of Productivity

Marvin Amann (), Yuriy Gorodnichenko and Oleksandr Talavera ()
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Marvin Amann: IfW Kiel, ifo Institute
Oleksandr Talavera: University of Birmingham

No 18895, IZA Discussion Papers from IZA Network @ LISER

Abstract: Why is war so economically costly? Our answer is that modern war lowers output not only by destroying productive factors, but also by making the surviving economy work less efficiently. Using uniquely comprehensive firm-level data collected during Russia's full-scale invasion of Ukraine in 2022, we document a dramatic collapse in allocative productivity in Ukraine. To sharpen identification and explore key mechanisms (including the role of war intensity, internal displacement, reallocation, and macroeconomic instability), we exploit spatial heterogeneity across Ukrainian districts and comparisons with Russian aggression in 2014 and the 2008 Global Financial Crisis. Our key policy implication is that restoring allocative efficiency--and preparing institutional arrangements that facilitate rapid reallocation in times of stress--is critical for sustaining economic capacity, defense, and national security.

Keywords: geoeconomics; defense; misallocation; productivity; war; Ukraine (search for similar items in EconPapers)
JEL-codes: D24 D61 F51 F52 H56 O47 O52 R12 (search for similar items in EconPapers)
Date: 2026-08
New Economics Papers: this item is included in nep-mac
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Working Paper: The Allocative Cost of War: A View to a Kill…ing of Productivity (2026)
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