Friendly fire: The trade impact of the Russia sanctions and counter-sanctions

Research output: Working paperWorking paper series

Abstract

Economic sanctions are a frequent instrument of foreign policy. In a diplomatic conflict, they aim to elicit a change in the policies of foreign governments by damaging their economy. However, sanctions are not costless for the sending economy, where domestic firms involved in business with the target countries might incur economic damages. This paper evaluates these costs in terms of export losses of the diplomatic crisis that started in 2014 between the Russian Federation and 37 countries, (including the United States, the EU, and Japan) over the Ukrainian conflict for the implicated countries. We first gauge the impact of the sanctions’ regime using a structural gravity framework and quantify the trade losses in a general equilibrium counterfactual analysis. We estimate this loss at US$114 billion from 2014 until the end of 2015, with US$ 44 billion being borne by sanctioning Western countries. Interestingly, we find that the bulk of the impact stems from products that are not directly targeted by Russian retaliations (taking the form of an embargo on imports of agricultural products). This result suggests that most of the losses are not attributable to the Russian retaliation but to Western sanctions. We then investigate the underlying mechanism at the firm level using French customs data. Results indicate that neither consumer boycotts nor perceived country risk can account for the decline in exports of products that are not targeted by the Russian embargo. Instead, the disruption of the provision of trade finance services is found to have played an important role.
Original languageEnglish
PublisherKiel Institute for the World Economy (IfW)
Publication statusPublished - Nov 2016
Externally publishedYes

Publication series

NameKiel Working Paper
PublisherKiel Institute for the World Economy (IfW)
No.2059

Fingerprint

Russia
Sanctions
Retaliation
Finance
Gravity
Import
Agricultural products
Disruption
Damage
Costs
Economic sanctions
Economics
Country risk
Boycott
Counterfactual analysis
Japan
Government
Domestic firms
Foreign policy
General equilibrium

Keywords

  • Sanctions
  • trade
  • foreign policy
  • Boycott
  • Embargo
  • Trade finance

Cite this

CROZET, M. D., & HINZ, J. (2016). Friendly fire: The trade impact of the Russia sanctions and counter-sanctions. (Kiel Working Paper; No. 2059). Kiel Institute for the World Economy (IfW).
CROZET, Matthieu Daniel ; HINZ, Julian. / Friendly fire: The trade impact of the Russia sanctions and counter-sanctions. Kiel Institute for the World Economy (IfW), 2016. (Kiel Working Paper; 2059).
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CROZET, MD & HINZ, J 2016 'Friendly fire: The trade impact of the Russia sanctions and counter-sanctions' Kiel Working Paper, no. 2059, Kiel Institute for the World Economy (IfW).

Friendly fire: The trade impact of the Russia sanctions and counter-sanctions. / CROZET, Matthieu Daniel; HINZ, Julian.

Kiel Institute for the World Economy (IfW), 2016. (Kiel Working Paper; No. 2059).

Research output: Working paperWorking paper series

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CROZET MD, HINZ J. Friendly fire: The trade impact of the Russia sanctions and counter-sanctions. Kiel Institute for the World Economy (IfW). 2016 Nov. (Kiel Working Paper; 2059).