Every USD 1 spent on military needs to support Ukraine adds up to USD 0.87 to GDP of donor countries – study

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Following russia’s full-scale invasion of Ukraine in 2022, many countries have supplied military assistance to Ukraine. While it appears that the multiplier did not change materially following the first invasion of Ukraine in 2014 or in 2022, in the short term, an expansion of military spending due to the war in Ukraine may have a stimulative effect on output in donor countries, the results of a study conducted by Chebanova, Faryna, Sheremirov (2023) show.

“We estimate that a USD 1 increase in military spending by the countries that supported Ukraine in 2022 is associated with a USD 0.65 increase in output within a year and a USD 0.79–USD 0.87 increase over the following two years. The cumulative multipliers decline at longer horizons but remain positive and significant for five years,” the study says.

According to the study, there are reasons to believe that may indicate the lower bound for the output effects of military support for Ukraine. And one such reason is that in 2022 much of the military support provided to Ukraine took the form of transfers of existing military equipment and ammunition.

“As domestic production in donating economies ramps up over the next few years to replace that equipment, a rising proportion of military spending could be directed to durable capital goods. Furthermore, the effects of public spending on military research and development can spill over into other sectors and stimulate aggregate demand and aggregate supply simultaneously,” the study says.

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