Macroeconomic Divergence under Wartime Shocks: Inflation and Public Debt Dynamics in Eastern EU and Balkan Economies

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Gasimov J., Babayev F., HÜSEYNLİ İ., Khudaverdili U.

Journal of Applied Economic Sciences, vol.21, no.3, pp.719-750, 2026 (Scopus)

  • Publication Type: Article / Article
  • Volume: 21 Issue: 3
  • Publication Date: 2026
  • Doi Number: 10.57017/jaes.v21.3(93).03
  • Journal Name: Journal of Applied Economic Sciences
  • Journal Indexes: Scopus, Central & Eastern European Academic Source (CEEAS), Business Source Ultimate (EBSCO)
  • Page Numbers: pp.719-750
  • Keywords: energy-mix composition, fiscal policy, inflation, public debt, Russia–Ukraine war, war economics
  • Open Archive Collection: Digital Heritage Collection
  • Azerbaijan State University of Economics (UNEC) Affiliated: Yes

Abstract

The Russia–Ukraine war has produced significant macroeconomic shocks across Europe, yet these have been absorbed unevenly across sub-regions with differing institutional arrangements. Existing scholarship has examined inflation and public debt largely in isolation, with limited comparative analysis of how Eastern EU member states and non-EU Balkan states have responded to this asymmetric shock. This study measures and compares the war's association with inflation and public debt across the two regional groups and identifies the structural factors related to their divergent resilience. A longitudinal comparative design covering 2018–2023 was adopted, drawing on data from Eurostat, the International Monetary Fund, and the World Bank. The analytical framework combined descriptive statistics, fixed-effects panel regression with country-clustered standard errors, and structural-break (Chow) tests applied at a harmonised monthly frequency obtained through linear interpolation of lower-frequency fiscal series. Eastern EU states experienced a more severe inflationary shock, with average HICP reaching 14.7% in 2022 against 11.3% in the Balkans; the energy-mix composition, proxied by the share of carbon-intensive imports and historical exposure to Russian energy supplies rather than headline import dependency, emerged as the strongest correlate (β = 0.182, p < 0.001). Balkan states, by contrast, faced greater fiscal stress, with public debt rising to 81.7% of GDP by 2023 against 56.1% in the Eastern EU; exchange-rate volatility was strongly associated with this divergence (β = 9.11, p = 0.006). Structural-break tests confirmed February 2022 as a statistically significant turning point for both inflation (F = 18.72, p < 0.001) and public debt (F = 9.43, p = 0.003). EU integration appears to constrain debt accumulation but offers limited protection against inflationary pressures. To the authors' knowledge, this study provides one of the first quantitative comparative assessments of wartime inflation–debt dynamics between Eastern EU and Balkan states.