Russia’s Wartime Economy : Measuring Regional Inequalities from Outer Space
Co-authored with Irakli Barbakadze , Jan Fidrmuc and Ketevani Kapanadze .
Abstract
This study examines the full-scale invasion of Ukraine in February 2022 as a natural experiment to assess the impact of disrupted international market access on regional economic inequalities in Russia. Using nighttime lights data as a proxy for economic activity, we compare cities near the EU and Ukrainian borders, where market access was restricted, to cities in southern Russia, which benefited from reoriented trade networks. Our findings reveal that western border cities experienced economic decline due to reduced trade and industrial disruptions, while southern cities showed relative resilience, likely driven by increased trade with non-Western markets. These results highlight the uneven economic impact of the war, with some regions adapting while others stagnate. This study contributes to the understanding of how geopolitical shocks reshape economic geography, offering insights into the long-term consequences of trade disruptions, sanctions, and shifting supply chains on regional development.
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.