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

Yuriy Gorodnichenko, Oleksandr Talavera () and Marvin Amann

No 21886, CEPR Discussion Papers from Centre for Economic Policy Research

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: 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
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