Heli Simola (BOFIT): Trade destruction and trade diversion – effects of trade sanctions on trade with Russia

BOFIT Seminar - Heli Simola (BOFIT): Trade destruction and trade diversion – effects of trade sanctions on trade with Russia

Co-author: Iikka Korhonen (BOFIT)

Abstraction:

We examine developments in Russian imports after the imposition of restrictions on exports to Russia by a coalition of sanctioning countries. As Russia has ceased to publish detailed statistics on foreign trade, we have to rely on export data from largest trading partners (mirror statistics). We are particularly interested in Russia’s trade diversion, i.e. to what extent Russian imports have shifted from sanctioning countries to other countries. We apply difference-in-difference approach in a similar vein to Chupilkin et al. (2023) in the Russia sanction context or Cigna et al. (2022) and Frazer and Van Biesebroeck (2010) in context of changes in tariffs. We use monthly export data and focus on technology goods (HS codes 84 and 85). Our dataset covers exports to Russia at the HS6-level of disaggregation from 20 sanctioning and 14 non-sanctioning countries during 2018‒2023. We find that sanctioning countries’ overall exports to Russia have fallen drastically, and exports of sanctioned goods have fallen clearly more than average exports. On the other hand, non-sanctioning countries’ exports of sanctioned goods to Russia have risen more than their overall exports. Therefore, Russia has been able replace some of the goods it is unable to get from sanctioning countries.

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