War Collapses Allocative Efficiency

Using firm‑level data from Ukraine’s 2022 invasion, researchers find that war sharply reduces allocative productivity — the economy’s ability to route resources to their best use — not just by destroying inputs but by making markets and firms operate far less efficiently. The drop in allocative efficiency is spatially correlated with war intensity, displacement, and macro instability, suggesting institutional and reallocation barriers amplify the economic damage. — If true, rebuilding and pre‑paring institutions that enable rapid reallocation become as important as physical reconstruction for recovery, defense readiness, and long‑run growth.