Konstantin Egorov (University of Antwerp) - Trade Sanctions

BOFIT-seminaarit

BOFIT Seminar - Konstantin Egorov (University of Antwerp) - Trade Sanctions

Co-authors: Vasily Korovkin (Universitat Pompeu Fabra), Alexey Makarin (MIT Sloan School of Management) and Jamila Nigmatulina (HEC Lausanne)

Abstract
How effective are trade sanctions? We examine the economic impact of the unprecedented sanctions imposed on Russia following February 2022, when Western countries banned exports accounting for 36% of Russia's prewar import value. Combining novel, manually collected records of these sanctions with Russian customs data, firm balance sheets, domestic railway shipments, and government procurement contracts, we provide the most comprehensive analysis of the economic impact of trade sanctions on a target country to date. Using a difference-in-differences approach, we find that imports of sanctioned country-product varieties into Russia saw a sharp 60% decline following the war's onset. While we see substantial rerouting through third countries, it did not fully offset the direct losses: total imports of sanctioned products fell by 31%. Firms that had relied on soon-to-be-sanctioned imports experienced a 14% decline in output, with similar effects observed in manufacturing, technology, and firms linked to military supply chains. Affected firms also saw reduced government procurement sales and incurred additional losses when their buyers or suppliers were exposed to sanctions. Overall, our findings suggest that, contrary to widespread claims of ineffectiveness, import sanctions on Russia had sizable and far-reaching adverse effects.

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