How War Distorts International Trade: Gravity-Model Evidence from Europe after the Russia-Ukraine Conflict

TL;DR

This paper uses a gravity model to analyze how the Russia-Ukraine conflict has significantly disrupted European and global trade, increasing trade costs and causing reallocation of trade flows.

Contribution

It introduces an extended gravity model incorporating geopolitical and institutional factors to quantify war-induced trade frictions and disruptions.

Findings

War amplifies trade frictions, reducing trade volumes.

Trade relationships are redirected towards less exposed regions.

Policy measures influence the extent and direction of trade disruptions.

Abstract

This paper investigates how geopolitical conflict reshapes trade patterns, focusing on the economic consequences of the Russo-Ukrainian war on European and global trade flows. War is conceptualized as a shock that increases bilateral trade costs within a structural gravity model, rather than as a force acting against trade flows, amplifying frictions in territories closer to the epicenter and reducing the economic attractiveness of major trade routes. The empirical analysis combines an Extended Gravity Model based on bilateral trade data from 2019 and 2023 with geographic, institutional, and political factors, including sanctions regimes and energy specialization. The findings show that war not only reduces trade volumes but also operates multiplicatively on trade frictions, influencing both the intensity and direction of trade disruptions, with more pronounced effects in the central corridors of the European market. As a result, some trade relationships collapse while others are redirected towards less exposed regions; furthermore, policy choices are decisive in shaping trade flows and contribute to isolating the Russian economy by creating a policy-induced trade void around the target country, while mechanisms such as the EU Single Market facilitate the internal reallocation of trade flows, preserving economic cohesion.