eichengreen167_Anastasia VlasovaGetty Images_ukraine destructions Anastasia Vlasova/Getty Images

Economic Consequences of a Ukraine Peace

The demand that Russia pay reparations for its unprovoked war in Ukraine is morally compelling. But Russia would be less likely to reconcile itself to Ukraine’s independence and territorial integrity, leaving Ukrainians unsafe and thus unable to embark on reconstruction, much less sustain stable economic growth.

BERKELEY – Russia’s war on Ukraine shows no sign of ending, but it is not too soon to start thinking about how to ensure postwar Ukraine’s stability, prosperity, and security. Already, two discussions are occurring: one about financing economic reconstruction, and the other about affirming Ukraine’s external security. The problem is that these discussions are proceeding separately, even though the issues are intimately related.

Reconstruction costs are uncertain because the course of the war is uncertain. Ukraine’s prewar GDP was some $150 billion. Given a capital-output ratio of three, and assuming that a third of the capital stock will be destroyed, we are again talking about $150 billion. As always, alternative assumptions yield alternative scenarios, but $150 billion seems like a reasonable starting point.

This is not an impossible amount of aid for donors to commit. It is one-sixth the size of the NextGenerationEU program on which European Union states agreed in July 2020. It is one-twelfth the size of the American Rescue Plan Act signed by US President Joe Biden in March 2021.

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