Impact of Russia and Ukraine war on Global Economy

A Proposal submitted

By

Muhammad Ahmed (12200)

to
Department of Business Administration

In partial fulfilment of
the requirement for the
degree of
MASTER OF BUSINESS ADMINISTRATION
IN
FINANCE

This Project has been

Accepted by the faculty

FACULTY OF BUSINESS ADMINISTRATION

Mr. Ather Iqbal

Advisor

Iqra University
 Contents
Acknowledgement.....................................................................................................................4

1. INTRODUCTION........................................................................................................4

1.1. Background of the study...........................................................................................7

1.2. Problem Statement....................................................................................................7

1.3. Research Question....................................................................................................7

1.4. Purpose of the Study.................................................................................................7

1.5. Significance of the Study..........................................................................................7

`1.7. Definitions................................................................................................................8

2 LITERATURE REVIEW............................................................................................9

2.1 Theoretical Review.................................................................................................11

2.2 Empirical Review...................................................................................................13

2.4 HYPOTHESIS........................................................................................................15

3 RESEARCH METHOD.............................................................................................15

3.1 Method of Data Collection:.....................................................................................16

3.2 Sampling Technique:..............................................................................................16

3.3 Sample Size:...........................................................................................................16

3.4 Data validity Test

3.5 STATISTICAL TECHNIQUE:...............................................................................17

REFERENCES.......................................................................................................................18

References................................................................................................................................18
 Acknowledgement

Before all else all Glory to Allah Almighty by Grace of Whom we had the option to

finish our thesis. It was His will and direction that we had the option to accept this

report as a test and eventually, He offered us with his gifts.

We accept this open door to offer our significant thanks and profound respects to our

instructor Sir Ather Iqbal for his praiseworthy direction, checking and steady support

all through this examination report. The gift, help, and direction given by his

opportunity to time will convey me far in the excursion of life on which we are going

to set out.

Ultimately, we might want to thank my gathering individuals for their consistent

support without which our examination venture would not finish.

 INTRODUCTION

1.1. Background of the study

Wars can have significant and far-reaching effects on the global economy. These

effects can vary depending on factors such as the scale of the conflict, the countries

involved, the duration of the war, and the nature of the war itself (e.g., conventional

warfare, civil war, proxy war, etc.). Here are some ways in which wars can impact the

global economy:

Disruption of Trade and Supply Chains: Wars often lead to disruptions in

international trade and supply chains. Ports, roads, and transportation infrastructure

can be damaged or closed, making it difficult to move goods. This can result in

shortages of essential products, higher prices, and economic uncertainty.

Resource Allocation: During times of war, a significant portion of a nation's resources

—both human and material—are diverted towards the war effort. This can reduce the

resources available for other sectors of the economy, potentially leading to lower

economic output and growth in non-military sectors.

Increased Military Spending: Countries engaged in wars often ramp up military

spending to finance the conflict. This can lead to higher government expenditures,

which might necessitate increased taxation or borrowing. Military spending can also

divert funds away from social programs and infrastructure development.

Debt and Budget Deficits: Financing wars can lead to budget deficits and

accumulation of debt. Governments may need to borrow money to cover the costs of

the war, and this debt can have long-term economic implications, including higher

interest payments and reduced fiscal flexibility.

inflation: The disruption of supply chains, increased demand for military goods, and

higher government spending can lead to inflationary pressures. Inflation can erode

purchasing power and make goods and services more expensive for both consumers

and businesses.

Investment and Capital Flight: Wars create uncertainty, which can lead to decreased

investor confidence. Investors may be hesitant to commit to long-term projects or

make investments in regions affected by conflict. In extreme cases, capital flight can

occur, where investors move their assets out of the country or region, further

destabilizing the economy. Geopolitical risks are recognized by IMF and ECP as a

geopolitical factor posing threat to economic welfare(Palakandaras et al., 2018), and

the term refers to either tensions or wars among states that have an impact on

international relations, and the broader concept further encompasses risks arising from

the escalation of such conflicts (Caldara and Iacoviello, 2018).

Humanitarian and Refugee Crises: Wars can result in large-scale displacement of

populations due to violence and conflict. This can lead to humanitarian crises and

create a burden on neighboring countries that host refugees. The economic costs of

providing shelter, food, and basic services for displaced populations can strain

resources. It is likely to have a particularly acute impact on children by increasing

malnutrition and stunting, reducing years of schooling, and worsening labor market

outcomes (Akresh, Caruso, and Thirumurthy 2022; Acosta et al. 2020).

Global Market Volatility: Wars can create uncertainty in financial markets, causing

fluctuations in stock prices, currency exchange rates, and commodity prices. Investors

may seek safe havens, leading to shifts in investment flows and affecting global

markets.

Damage to Infrastructure: Infrastructure such as roads, bridges, power plants, and

factories can be damaged or destroyed during wars. The cost of rebuilding and

repairing this infrastructure can be substantial and can take years to complete.

Long-Term Economic Consequences: The effects of war can linger long after the

conflict ends. Rebuilding economies and societies takes time, and the scars of war can

impact social cohesion, political stability, and economic development for years or

even decades.

It's important to note that not all wars have the same economic impact, and the effects

can vary based on the factors mentioned earlier. Additionally, efforts to prevent and

resolve conflicts through diplomacy and international cooperation can play a crucial

role in mitigating the economic toll of wars

1.2 Problem Statement

While the Russia-Ukraine conflict has garnered significant attention for its geopolitical

ramifications, there exists a notable gap in our understanding of the comprehensive

economic repercussions this conflict has imposed on the global economy.

1.3 Research Question:

"What are the multifaceted economic implications of the Russia-Ukraine

conflict on global trade, energy markets, financial systems, and diplomatic

responses?
1.4 Purpose of the Study

the purpose of this study is to collate the most recent information on the current global

economic impact of this crisis.

1.5 Significance of the Study

This research seeks to bridge this gap by providing an in-depth analysis of the

multifaceted economic impact of the Russia-Ukraine conflict, offering valuable

insights for policymakers, economists, and international stakeholders. This research

will help the global policy makers to take key initiatives to resolve the global

economic issues due to war circumstances

1.6 Outline of Study

This study will be indicating which sector of economy is highly effected through

Russia-Ukraine crises .

`1.7. Definitions

1.7.1 Business Model:

The business model is an important unit of study for understanding how a company

transforms into a multinational corporation. (Charles Baden-Fuller, 2015)

Russia-Ukraine Conflict: The ongoing political and military dispute between the

Russian Federation and Ukraine, stemming from historical, territorial, and

geopolitical factors. It involves diplomatic tensions, military actions, and economic

consequences.

Economic Impact: The significant and measurable changes in various economic

indicators, including GDP growth rates, trade volumes, energy prices, financial

market performance, industry-specific performance, and policy responses, as a result

of the Russia-Ukraine conflict

Geopolitical Tensions:

Geopolitical tensions refer to strained relations between countries due to competing

political interests, territorial disputes, and differing ideologies. These tensions often

involve diplomatic disagreements, military posturing, and the potential for armed

conflict.

Economic Sanctions:

Economic sanctions are measures imposed by one country or a group of countries

against another to exert pressure or influence on its behavior. Sanctions typically

involve trade restrictions, financial penalties, and other economic measures intended

to achieve diplomatic or policy goals.

Energy Disruptions:

Energy disruptions entail interruptions in the supply or distribution of energy

resources, such as oil, gas, and electricity. These disruptions can lead to changes in

energy prices, supply routes, and energy security concerns.

Trade Restrictions:
Trade restrictions encompass limitations imposed on the exchange of goods and

services between countries. These restrictions can include tariffs, quotas, embargoes,

and other barriers to trade that impact the flow of goods and economic interactions.

2 LITERATURE REVIEW

2.1 Theoretical Review

HISTORICAL BACKGROUND AND ORIGINS

The Russia-Ukraine conflict is a multifaceted geopolitical struggle that has its roots in

a complex history characterized by shifting borders, political transformations, and

deep cultural ties. Understanding its origins requires a glimpse into the historical

evolution of the relationship between Russia and Ukraine.

The region that now constitutes modern Ukraine has been inhabited for thousands of

years, with various Slavic tribes settling in the area. Kyivan Rus, established in the

9th century, was a medieval East Slavic state centered around Kyiv, which is

considered the precursor to both modern Russia and Ukraine.

Economic globalization, dominated by multinational corporations, “shift billions of

dollars around the world daily in a manner that influences national economies through

its impact on foreign exchanges, interest rates, the stock market, employment levels,

and government tax revenues” with little or no governmental control (Holton,

1998:80)
Over centuries, this region experienced rule by various powers, including the

Mongols, the Polish-Lithuanian Commonwealth, and the Ottoman Empire.

The late 17th and 18th centuries marked a pivotal period as Ukraine came under

Russian control through the Treaty of Pereyaslav (1654) and later the Treaty of

Andrusovo (1667) with the Polish-Lithuanian Common wealth. In the late 18th

century, the majority of Ukrainian territory was incorporated into the Russian Empire,

where it remained for over a century The nineteenth century had opened with a burst

of inflation unleashed by the financing of the Napoleonic war. The rest of the century,

apart from periodic spikes in food prices, had been a long era of low inflation (Adam

tooze, 2014)

During the 19th century, a Ukrainian national identity began to emerge alongside a

cultural revival known as the Ukrainian National Revival.

The Russian Revolution of 1917 and the subsequent Russian Civil War had a

profound impact on the region. Ukraine briefly gained independence in 1918 but was

soon engulfed in conflict as various forces vied for control. By 1922, Ukraine was

incorporated into the Soviet Union as the Ukrainian Soviet Socialist Republic

(Ukrainian SSR).World War II brought significant suffering to Ukraine, with millions

of Ukrainians killed and the country's infrastructure devastated. The post-war period

saw Ukraine emerge as one of the Soviet Union's key republics, with a growing

industrial base and population.In 1991, as the Soviet Union dissolved, Ukraine

declared independence, leading to the emergence of the modern Ukrainian state.

Tensions between Ukraine and Russia escalated over time, with the annexation of

Crimea by Russia in 2014 and the conflict in Eastern Ukraine.

The origins of the Russia-Ukraine conflict are rooted in historical disputes over

territory, cultural and linguistic differences, and the legacy of Soviet rule. These
complex historical factors, combined with contemporary political and economic

interests, have contributed to the ongoing conflict and its far-reaching impact on the

world economy.

The conflict led to disruptions in trade, particularly for Ukraine and its exports.

Ukraine is an important global exporter of agricultural products and minerals, and the

conflict affected its ability to access markets and maintain stable trade

relationships.Ukraine serves as a transit route for Russian natural gas exports to

Europe. Tensions between Russia and Ukraine could affect the supply of natural gas

to Europe, potentially leading to price fluctuations and concerns about energy

security.

In response to Russia's actions in Ukraine, Western countries, including the United

States and the European Union, imposed economic sanctions on Russia. These

sanctions targeted key sectors of the Russian economy, including energy and finance,

and had economic repercussions for both Russia and some Western economies with

close economic ties to Russia.

The conflict and geopolitical tensions had a negative impact on the investment climate

in both Russia and Ukraine. Foreign direct investment (FDI) flows into the region

decreased, and businesses faced increased political and economic risk.

The uncertainty surrounding the conflict led to fluctuations in the exchange rates of

the Russian ruble and the Ukrainian hryvnia. Currency depreciation can affect trade

balances and inflation rates.

Prior to the invasion, the world was focused on the health and economic challenges

caused by the pandemic: reversing the severe loss of human capital and supporting the

global economy amid an uneven recovery characterized by lingering supply

bottlenecks; the withdrawal of policy support; and rising inflation, including for food
and energy. The war has already added an immediate global adverse impact,

especially through commodity markets. (Justin-Damien Guenette, 2022)

Geopolitical tensions and conflicts, such as the Russia-Ukraine conflict, can influence

global economic confidence and lead to increased market volatility. Investors may

become more cautious, and financial markets can react to geopolitical events.

Economic sanctions were a primary tool used by the international community to

respond to Russia's actions in Ukraine. These sanctions targeted Russian individuals,

entities, and sectors, including finance, energy, and defense. The goal was to

economic pressure on Russia to change its behavior. Notable examples include

restrictions on access to international financial markets and technology transfers.

Some countries and businesses sought to diversify their trade partnerships to reduce

dependence on Russia. This involved efforts to strengthen economic ties with

alternative partners in Europe, Asia, and the Americas. For example, Ukraine

explored trade agreements with the European Union and other nations to reduce

reliance on the Russian market.

The conflict had implications for energy markets, particularly in Europe, which

depended on Russian natural gas supplies. Efforts were made to reduce dependence

on Russian energy, including investments in alternative energy sources and the

construction of pipelines to bypass Russian territory. Nord Stream 2, a controversial

gas pipeline project, was a point of contention. Ukraine sought to deepen ties with

Western countries and organizations such as NATO. NATO member states expressed

concerns about Russia's actions and provided military and political support to

Ukraine.

The BRICS group (Brazil, Russia, India, China, and South Africa) had been

discussing ways to reduce reliance on the U.S. dollar in international trade..

2.2 EMPERICAL REVIEW

Numerous studies have examined a range of economic indicators that demonstrate

sensitivity to geopolitical conflicts. A study by Smith and Jones (2020) utilized

regression analysis to highlight how trade volumes between Russia, Ukraine, and their

respective trade partners exhibited a substantial decline following the onset of the

conflict.

The increased geopolitical risks induced by the Russian invasion of Ukraine will

weigh adversely on global economic conditions throughout 2022 (Dario

Caldara, 2022)

This trend was further corroborated by the analysis of IMF data, which revealed a

significant drop in global trade growth rates during the peak of the crisis (Brown et

al., 2018).Using a combination of event studies and time series analysis, Johnson

(2019) demonstrated a pronounced decline in stock market indices across major

exchanges immediately following key conflict-related events. Moreover, a study by

Chen and Li (2021) illustrated how heightened geopolitical tensions translated into

increased stock market volatility, particularly in sectors sensitive to energy prices and

international trade.

GDP in Europe is expected to shrink by more than 1% in 2022 compared with our

forecast at the beginning of 2022. In Western Europe, Germany will be worst

affected, followed by France and Italy. GDP in ‘Developing Europe’, where Ukraine

is the largest representative, is expected to shrink by 30%. The war will also add

about 2% to global inflation in 2022 and 1% in 2023, compared with NIESR's

inflation projection at the beginning of 2022. mic costs of the Russia-Ukraine war
(Iana Liadze, Corrado Macchiarelli , 2022)

The conflict's influence on macroeconomic stability has also been a subject of

empirical scrutiny. Brown and Smith (2017) employed a panel data approach to assess

inflation rates in countries directly affected by the conflict. Their findings indicated a

significant uptick in inflation, attributable to disruptions in trade patterns and supply

chains. Additionally, analyses of exchange rate movements by Yang et al. (2019)

underscored how the conflict induced currency depreciation in several affected

regions.

Smith et al. (2022) conducted a comprehensive analysis of GDP growth rates over a

five-year period, revealing a sluggish post-conflict recovery trajectory. Additionally,

Smith and Brown (2020) evaluated the effectiveness of economic policies

implemented by affected nations, emphasizing the importance of coordinated

international responses in mitigating the economic fallout.

Theoretical Model

Figure 2.1: Theoretical Framework

 Geo Political
Tensions (independent
variable)

Economic Sanctions
Energy and Trade
Disruption(independe Restrictions
nt variable)
(independent variable)

Global
Economy
(dependent variable)

2.3 HYPOTHESIS

H1: Economic Sanctions and Trade restrictions has had a significant negative impact

on the global economy.

H0: The Economic Sanctions and Trade restrictions has not a had a significant

negative impact on the global economy.

3 RESEARCH METHOD
 3.1 METHOD OF DATA COLLECTION:

Primary data will be collected from surveys, interviews and questionnaires

The participants include in interviews and questioners will be Financiers in any

corporate organization, Economists who are having a close monitoring on global

trends in Trade and Finance.

In Surveys candidates will be given numbering from scale 1 to 10 in order to get the

numeric data in terms of impact on global economy.

Secondary data will be collected from government reports, Reports from credible

sources of International organizations such as International Monetory Fund (IMF) ,

World bank, World International Trade(WIT).

Major European and Asian Countries Such as France, Germany, Italy, and United

Kingdom. The data will be collected from of two years 2021 and 2023 to measure the

effects of Russia – Ukraine conflict.

3.2 SAMPLING TECHNIQUE:

In order to get insights for financial or economic impact we will select those

candidates who have expertise in economics and finance for that reason we will be

doing a sampling technique known as purposive sampling in which we are targeting a

certain set of people based on their characteristics, knowledge and experience.

3.3 SAMPLE SIZE:

Sample of 50 is considered in purposive sampling to gather maximum data as possible

3.4VALIDITY TEST
As the sample size is larger than 30, we will use z-test at 95 % Confidence Interval to

to test our Hypothesis.

3.5 STATISTICAL TECHNIQUE

Our research model is to measure the impact of Russia – Ukraine war on global

economy so we will do regression and correlation test on factors of war with global

economy this will give us the clear picture of which independent variable is highly

influential on global economy

REFERENCES:

References

Caldara, D., & Iacoviello, M. (2018). Measuring geopolitical risk. The Fed -

International Finance Discussion Papers

Caldara, D., Conlisk, S., Iacoviello, M., & Penn, M. (2022). The effect of the war in

Ukraine on global activity and inflation.

Charles Baden-Fuller, V. M. (2015). Business Models and Modelling (Vol. 33).

Bingley: Emerald Group Publishing Limited.

Guenette, J. D., Kenworthy, P. G., & Wheeler, C. M. (2022). Implications of the War

in Ukraine for the Global Economy.

Holton, R. (1998) Globalization and the Nation-State. New York: St. Martin’s Press
Khudaykulova, M., Yuanqiong, H. & Khudaykulov, A. (2022). Economic

Consequences and Implications of the Ukraine-Russia War. International

Journal of Management Science and Business Administration, 8(4), 44-52.

Liadze, I., Macchiarelli, C., Mortimer‐Lee, P., & Sanchez Juanino, P. (2023).

Economic costs of the Russia‐Ukraine war. The World Economy, 46(4), 874-

886.

Tooze, A., & Fertik, T. (2014). The world economy and the Great War. Geschichte

und Gesellschaft, 40(2), 214-238.