The economic costs of the War in Donbas for the affected Ukrainian regions

Using the Synthetic Difference-in-Differences (SDiD) estimator, we show that the economic effects of the War in Donbas on Luhansk and Donetsk oblasts between the years 2014 and 2019 were of enormous magnitude. We estimate the average treatment effect on per capita disposable income of 3362 USD (constant 2011) and per capita gross regional product (GRP) of 4853 USD. These effects correspond to a decline from the counterfactual by 53% and 60%, respectively. We also show a sharp increase in the unemployment rate by 5.56 percentage points. By estimating the effect on investment activity as well, we highlight one of the possible underlying mechanisms through which the fall in income and GRP could take place. The impact on gross fixed capital formation is over 2.5 billion USD (65% less than in the counterfactual scenario). We control for possible spillover effects on neighboring regions which would lead to the SUTVA violation. Using a spatial extension of DiD, we do not find any significant spillover effects.