CreditManagerMagazine 06 2022

ANALYSIS
ads’ increase by 12% and 13%, respectively,
already one year after the start of a civil war.
In the manufacturing sector, trade values increase
by 7% on average, and only if conflicts
last for several years. Hence, manufacturing
supply chains seem to be more hesitant
to relocate compared to imports of primary
goods. Interestingly, we find no evidence of
supply chain adjustments in the fuels sector.
If anything, importers cut back on fuel
imports from alternative trading partners
to maintain their current fuel imports of
their main exporting partner who is now at
conflict. This is a reaction we see again today,
where countries highly dependent on
Russian oil and gas struggle to scale back
What do our findings imply for Ukraine’s
global supply chains? Here, we can draw on
case study evidence from Russia’s annexation
of Crimea and the subsequent civil war that
erupted in Ukraine’s Donbas region. Applying
a similar structural gravity-general equilibrium
estimation technique as in Kwon
et al. (2022), we estimate the reduction in
Ukraine’s exports following the outbreak of
the civil war in 2014. We then use this estimate
to compute hypothetical trade patterns
and welfare levels of countries worldwide
if this conflict would never have happened.
Comparing actual to hypothetical trade flows
and welfare levels, we get an idea of how this
conflict affected the global economy. While
we can hardly compare the scale of violence
during the civil war to today’s situation, the
qualitative tendencies are likely to be similar.
We find that several dyads increase their bilateral
shipments in response to the civil war.
The countries most affected by the disruption
of imports were Egypt, Moldova, Jordan,
and Ethiopia. For most of them, Kazakhstan,
Slovenia, and Finland resembled the main
substitution partners, as they increased their
imports from these countries by up to 2% in
response to the civil war. Looking at welfare
changes, however, we find that all countries
are left worse off compared to the counterfactual
where the civil war did not take place.
While it is not surprising that Ukraine itself
suffered the most, even those countries that
benefit from trade relocation (e.g. Kazakhstan
and Slovenia) become worse off overall
from the civil war, as the increases in export
demand do not compensate the loss relating
to trade opportunities with Ukraine.
The future of the global economy
We conclude this column by looking ahead.
How can the Ukrainian and Russian economies
recover from the war once the violence
ends and the sanctions are lifted? As far as
international trade is concerned, it highly
steps in this direction. Nevertheless, current
considerations to foster economic and political
relations with Ukraine, and even to initiate
the process of Ukraine joining the EU,
can be a valid measure to counteract the loss
in trade access brought upon them by Russia’s
declaration of war.
The article was originally published on the
VoxEU.org platform. Notes and bibliography
are also available there.
“We find that the trade relocation effects we estimate during
a civil war remain of almost the same magnitude up to nine
years after a civil war ended.”
on these imports, even though they support
various other sanctions. Our findings further
add to the recent discussion in Kwon et al.
(2022), who find evidence that sanctioning
countries substitute for exports from third,
non-sanctioned countries. If our results apply
similarly to the economic effects of sanctions,
and in light of the current debate on oil
and gas embargos against Russia, we would
not expect to find such a substitution effect
for trade in fuels.
depends on how long the war and sanctions
will go on, and on how the rest of the world
reacts. In our study, we estimate how trade
relationships behave after a civil war ends.
Here, we find that the trade relocation effects
we estimate during a civil war remain of almost
the same magnitude up to nine years
after a civil war ended. Our 20-year sample
unfortunately does not allow us to look
for much longer periods. Especially in the
manufacturing sector, the relocation effects
robustly remain unchanged after peace is
established. That is, whereas manufacturing
supply chains tend to remain intact during
shorter periods of violence, they also stay
relocated once a substitution took place. As
a possible explanation of this persistence, we
provide evidence that (sustained) periods of
violence and the resulting trade relocation
effects increase the likelihood that the substituting
importers persistently decrease the
bilateral trade costs with their substitution
partners by signing Preferential Trade Agreements
with them. Hence, relocation persists
because the world economy reaches a new
equilibrium, in which the (former) conflict
countries’ relative trade costs have increased
compared to the pre-war situation.
This has implications should the war in
Ukraine continue for so long that the relocation
of supply chains and the subsequent
conclusion of new international cooperation
agreements cement a new structure of the
world economy. In that situation, our analysis
suggests that both Ukraine and Russia
would find it hard to recover their international
economic standing from before the
conflict (Chepeliev et al. 2022). The recent
visit of Germany’s Secretary of Economic
Affairs to Qatar and negotiations on better
trade relationships may be one of the first
VoxEU.org – CEPR’s policy portal
Was set up in June 2007 to promote
„research-based policy analysis and
commentary by leading economists”.
Vox’s audience consists of economists
working in the public sector, private
sector, academia and media – as well
as students of economics in the broad
sense. Vox columns cover all fields
of economics broadly defined and is
widely read (the site receives about a
half million page views per month).
CZERWIEC / JUNE 2022
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