The “War Factor” in Building an Econometric Model of Ukraine's Business Environment

Abstract

The state of the economy in the conditions of a full-scale Russian war on the territory of our country was studied, the main trends, threats and factors of influence were identified. The focus was on business losses: a decrease in activity volumes, the destruction of material funds and resources, an increase in costs and the formation of losses. In order to assess business activity, the following indicators were analyzed: the business activity index, the business activity expectations index and the business activity recovery index. The need to formalize the impact of war in the model by introducing a dummy (binary) variable is proven and the formalized impact of war in the model of the business environment of Ukraine is justified. The gradual narrowing of the gap between estimates and expectations in 2024-2025 was interpreted as a sign that the economy had adapted to new conditions, and business began to operate in a more predictable environment. Such changes were assessed as typical for situations when an exogenous shock occurs, which changes the mechanism for forming a performance indicator - such a shock in modern conditions is war. The use of a binary variable increases the analytical value of the model, as it allows avoiding the bias of parameter estimates and improves their economic interpretation. This is especially important in conditions of high uncertainty, when standard econometric approaches without taking into account structural changes can give distorted results.