ESTIMATING THE ECONOMIC COST OF WAR, UKRAINE (2014-2023): SYNTHETIC CONTROL METHOD

Abstract

This study applies the Synthetic Control Method (SCM) to measure Ukraine’s economic output loss caused by the Russo-Ukrainian War since 2014. We create a “synthetic Ukraine” from a weighted mix of 18 regional peer countries using GDP per capita (PPP) data from 1996 to 2023. The weights for each donor country are calibrated so that the SCM accurately replicates Ukraine’s pre-2014 GDP trend from 1996 to 2013 (before the war). These pre-war weights are then applied to estimate the synthetic control for the war period 2014-2023. After 2014, the real GDP diverges significantly from the counterfactual path. By 2021, the GDP gap had reached approximately $1,007 per capita (PPP) or $44.6 billion GDP PPP (accounting for 6% same year's official GDP PPP), equivalent to a loss of ₴325.6 billion of nominal GDP. Cumulatively, the conflict caused an estimated $1.1 trillion GDP loss from 2014 to 2023. The donor weights for synthetic Ukraine focus on Armenia (0.54), Romania (0.35), and Hungary (0.10), reflecting similar growth trajectories before the war. Robustness checks support the results: placebo SCM on unaffected Armenia shows no significant gap after 2014, and leave-one-out tests reveal a large, persistent gap supporting the causal effect. These findings confirm that the divergence is due to treatment (war-related disruption), not model error. The substantial GDP shortfall highlights the level of output recovery needed; policymakers can use these quantified gaps to plan sector-specific reconstruction efforts.