Conflict and Intergroup Trade: Evidence from the 2014 Russia-Ukraine Crisis

Vasily Korovkin and Alexey Makarin

American Economic Review, 2023, vol. 113, issue 1, 34-70

Abstract: Does armed conflict reduce trade, even in noncombat areas, through the destruction of intergroup social capital? We analyze Ukrainian trade transactions before and after the 2014 Russia-Ukraine conflict. In a difference-in-differences framework, we find that Ukrainian firms from districts with fewer ethnic Russians experienced a deeper decline in trade with Russia. This decline is economically significant, persistent, and can be explained by erosion of intergroup trust. Affected Ukrainian firms suffered a decrease in performance and diverted trade to other countries. Our results suggest that, through social effects, conflict can be economically damaging even away from combat areas.

JEL-codes: D74 F14 F51 J15 P31 P33 Z13 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1257/aer.20191701

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