Editors note: This column is part of the Vox debate on the economic consequences of war.
Population dynamics, and more specifically human capital formation, are the determining factors for economic growth (Angrist et al. 2021). Before the Industrial Revolution, economic growth was virtually linked to population growth (Murphy et al. 2008). Subsequently, from 1913 to 2010, the global average annual population growth rate was 1.4%, while the actual GDP growth was 3% (Peterson 2017). This means that population change was still about half of total economic growth, despite dramatic technological advances and changes in productivity that the world saw in the 20th century (Eventet and Baldwin 2021).
Population growth is even more important if capital is destroyed due to war. Germany had a skilled workforce before World War II, but its capital and human resources were largely destroyed. However, Germany has received more than 12 million refugees from the former German territory east of Oder and from areas with a substantial German ethnic population in Central and Eastern Europe. This influx of people contributed to the expansion of economic growth in the following decades (Hazlett 1978).
The cost of war is sometimes masked by the calculation of national income, which ignores the loss of life and the destruction of physical and human capital associated with war (Broadberry and Harrison 2018).
Population trends in Ukraine before the war
In the spring of 2020, when the Kovid-19 epidemic broke out, there was speculation that Ukraine would see a baby boom by the end of the year as homeless families spent more time together. Instead, there were 5,000 fewer births between December 2020 and February 2021 than a year earlier. Covid-19 also had a sharp, upward effect on mortality (Figure 1).
The epidemic has only added to the trend of a pronounced declining population. A decade ago, in 2012, the annual population decline in Ukraine (excluding immigration) was estimated at 142,400. By 2020, this decline has increased to 323,400 and in 2021 to 442,300 (State Statistics Service 2022). This means that a year before the Russian invasion, the country lost more than 1% of its citizens.
Figure 1 Birth and death rates in Ukraine (per 100,000 inhabitants)
Formula: State Statistics Service of Ukraine, accessed 17 June 2022.
Ukraine’s population is rapidly aging: in 1990, its average age was 35; By 2010, it had surpassed 39; And in 2022, at the start of the war, it was 41 years. The baby-boomer generation born after World War II has joined the list of pensioners (Figure 2). This generational change means that Ukraine cannot replace its retired workers with younger ones. Overall, by 2030, the total demographic toll on the economy (combined mortality and generation migration) will drop to more than 300,000 people a year (Figure 3). And this was the trend even before the war started.
Figure 2 Age-gender population structure in Ukraine as of 2021
Formula: State Statistics Service of Ukraine, accessed 17 June 2022.
War and refugee crisis in 2022
The war brought about a deep demographic crisis. During WWI, the fertility rate of European countries broke down (Vandenbroucke 2012). In support of this research, Caldwell (2004) shows that fertility declines in 13 other crises, such as wars and revolutions, in different countries and periods.
Evidence suggests that Russia’s invasion of Ukraine will deepen the population decline. Meanwhile, one-third of Ukraine’s population is moving. As of mid-June 2022, about 7.6 million Ukrainians have left the country and 5.1 million are still living in other countries (UNHCR 2022). The latter is equivalent to 12-15% of the country’s population.
In the short term, this refugee wave reduces costs and tax revenues in Ukraine. Ukrainians in Europe act as millions of individual importers, generating 100 100 million in foreign exchange drains daily (National Bank of Ukraine 2022). Analysis of the transactions of one of the leading banks in Ukraine shows that the share of foreign payments through its debit and credit cards increased by 8% from pre-war to 28% in May 2022 (Alpha-Bank 2022).
Almost all adult Ukrainian refugee women. Every third child in Ukraine lives abroad. These families have been temporarily separated from about 2 million men either waiting for them to return to Ukraine or considering joining them abroad after the war. Some of these refugees are likely to be long-term migrants, especially because of the war and they find employment in other European countries. Even if only 15% of refugees and their families remain abroad after the end of the war, this conservative estimate refers to a strong additional cut of about 400,000 for Ukraine’s rapidly declining labor force (Figure 3).
Figure 3 Annual changes in the population of Ukraine aged 15-70 years
Formula: Author’s guess
Policy to reduce population challenges
First, government policies should focus on creating incentives for Ukrainians abroad to return to Ukraine once the war is over. These policies may include financial rewards for rebuilding a home and business. There should also be an international effort to bring back the more than 1 million Ukrainians who have been forcibly displaced in Russia since the hostilities began.
Second, the government, with grants from the international community, should help refugees who have lost families. Priority assistance should be provided in the form of providing welfare to these individuals.
Third, child support policies may aim to increase fertility rates. Policies can reduce the cost of caring for women in particular. A general mode of child care is provided by day-care centers and pre-schools, which can be public or private. If this type of childcare is widely available, covers workdays and is affordable, it is easier for women with children to return to work and as a result are more likely to have large families (Doepke et al. 2022).
Finally, post-war recovery should move towards creating a new, green economy (Weather de Mauro 2021). The ongoing crisis allows the Ukrainian economy to innovate, move away from reliance on imported energy and towards the production of high-value goods. Investment in education is key to this growth strategy.
Alpha-Bank (2022), “Ukrainians Abroad: How Much They Spend, Where and What They Buy”, Alpha-Bank.
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National Bank of Ukraine (2022), “Daily outflows through Ukrainian-issued cards abroad is about $ 100 million”.
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