Rebuilding Ukraine is not going to be easy

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Earlier this year, I wrote in my regular Reuters column about the huge investment opportunity from the reconstruction of Ukraine, once the war there ends. Now, things have got a bit sidetracked this year, but the opportunity persists no matter what happens elsewhere in the world. But I don’t want to be accused of boosterism. It is not going to be easy to rebuild Ukraine, as a study by the University of Chicago and the World Bank shows.Remember when former Warsaw Pact countries tried to rebuild their economies after fifty years of communist rule? Factories were in a terrible state, and companies were mismanaged. Economists back then argued for shock therapy and radical liberalisation of the local economies. That didn’t work out too well in the end. But at least it showed how difficult it is to invigorate an ailing economy dominated by unproductive businesses.Unfortunately, Ukraine shows some parallels to these countries. Here is the annual productivity growth in Ukraine until the pandemic. There is a clear decline in productivity growth.Ukraine’s declining productivity growthSource: Akcigit et al. (2025)This decline in productivity growth, according to the study, is driven, among other things, by a declining responsiveness to productivity shocks. Ukrainian businesses adapt less and less to advances in technology and hence lose competitiveness in an international comparison and experience lower growth domestically.Declining responsiveness to productivity shocksSource: Akcigit et al. (2025)This, in turn, seems to be driven by a lack of creative destruction. There are fewer ban…