The Impact of the Crisis Induced by the Conflict in Ukraine on Firms: Evidence from North Macedonia

Abstract

Abstract This paper evaluates the impact of the Ukraine conflict-induced crisis on firms in North Macedonia using data from a survey conducted with 112 firms in April and May 2023. Through descriptive statistics and probit regression analysis, we find that small firms in low-wage sectors predominantly coped with the crisis by raising prices of final products and services, followed by cost-cutting measures. Larger firms tended to invest in self-electricity generation or energy-saving equipment. Our results show that firms with higher energy cost shares increased final prices more but experienced decreased competitiveness. Firms not addressing rising costs did not consistently pass these costs onto prices or maintain competitiveness, except for labor costs. Labor cost increases, such as from minimum wage hikes, may lead to cost-push inflation unless firms absorb these costs at the expense of profits.