Russia’s Wartime Economy : Measuring Regional Inequalities from Outer Space
Co-authored with Irakli Barbakadze , Jan Fidrmuc and Ketevani Kapanadze .
Abstract
We study Russia’s February 2022 full-scale invasion of Ukraine as a natural experiment to determine how sudden disruptions to international market access reshape sub-national economic inequalities. Using remotely-sensed nighttime lights as a proxy for economic activity, we estimate the economic effects of the war at the national and regional levels. We find that Russia experienced an overall economic slowdown after the start of the full-scale invasion. Regions in Western and North-Western Russia experienced significantly larger economic contractions, while Southern and Southeastern regions exhibit relative improvements in performance. These findings suggest that sanctions, a shift toward non-Western markets, and increased military production, have driven significant regional changes in Russia’s economy and urban structure.
Motivation
- The sanctions that Russia faces since the 2024 full-scale invasion have had an impact on Russian economy, however the intra-regional implications are understudied.
Research question
- What is the impact of the full-scale invasion of Ukraine on the economic development of cities and regions?
- What factors can explain the differences in the results?
Contribution
- Use of non-administrative variables (night-time lights) to evaluate the impact of the Russian invasion of Ukraine on regional development in Russia on a granular scale.
Empirical strategy
- Comparison of economic development of a city before and after invasion.
- Dependent variable: Year-on-year growth of nighttime lights for a Russian city at a monthly basis.
- Variable of interest: start of the full-scale invasion.
- Control variables: trend and month and city-level fixed effects.
- Method: regression discontinuity design in time.
Results
- Significant decline in economic activity, measured by night-time lights, in Russian cities, with a degree of heteroegenity (decline near borders with the EU, Ukraine and Belarus, while economic growth in the proximity of the borders with China and Georgia), indicating a possible impact of trade diversion after the imposition of sanctions on Russia.