Conflict and Inter-Group Trade: Evidence from the 2014 Russia-Ukraine Crisis
- American Economic Review (Forthcoming)
Does armed conflict reduce trade, even in noncombat 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 can be explained by erosion of inter-group 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.