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

72 Pages Posted: 18 Jun 2019 Last revised: 8 Nov 2019

See all articles by Vasily Korovkin

Vasily Korovkin

CERGE-EI

Alexey Makarin

Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR)

Date Written: November 7, 2019

Abstract

Does armed conflict reduce trade even in non-combat areas through the destruction of inter-group 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 explained by erosion of trust and the rise of local nationalism. 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.

Keywords: Conflict, Inter-Group Tensions, Trade, Firms

JEL Classification: D22, D74, F14, F51, H56

Suggested Citation

Korovkin, Vasily and Makarin, Alexey, Conflict and Inter-Group Trade: Evidence from the 2014 Russia-Ukraine Crisis (November 7, 2019). Available at SSRN: https://ssrn.com/abstract=3397276 or http://dx.doi.org/10.2139/ssrn.3397276

Vasily Korovkin

CERGE-EI ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.vaskorovkin.com

Alexey Makarin (Contact Author)

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, Lazio 00187
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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