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Sanctions and Decoupling of Global Trade Flows

Paper Session

Saturday, Jan. 4, 2025 10:15 AM - 12:15 PM (PST)

San Francisco Marriott Marquis, Foothill F

Hosted By: Association for Comparative Economic Studies

Chair: Iikka Korhonen, Bank of Finland Institute for Emerging Economies

High-Priority Battlefield Items and Television Sets: How Sanctions Reduced Russians’ Access to Goods

Iikka Korhonen

Bank of Finland Institute for Emerging Economies

Heli Simola

Bank of Finland Institute for Emerging Economies

Abstract

We examine Russian imports since a coalition of countries imposed sanctions on exports to Russia. We are particularly interested in trade diversion, i.e. the extent to which Russian imports have shifted from sanctioning countries. Our analysis is based on monthly export data and focuses on technology goods utilizing a difference-in-difference approach. Our dataset covers exports to Russia at the HS6-level of disaggregation from 26 sanctioning and 14 non-sanctioning countries during 2018‒2023. We find that the exports of sanctioning countries to Russia fell drastically overall. On the other hand, the export of sanctioned goods to Russia by non-sanctioning countries have risen more than their overall exports. Russia has managed to replace some goods no longer available from sanctioning countries, but not all of them.

Lost in Transit, and Other Ways of Working around Trade Sanctions

Maxim Chupilkin

European Bank for Reconstruction and Development

Beata Javorcik

European Bank for Reconstruction and Development

Alexander Plekhanov

European Bank for Reconstruction and Development

Abstract

This paper documents multiple strategies deployed to work around trade sanctions imposed on Russia in 2022. These include the use of intermediaries and probable misclassification of goods subject to sanctions as similar exempt goods. The greatest contribution, however, comes from a simple variety of intermediated trade: goods shipped through the sanctioned economy to intermediaries in the neighbouring economies fail to reach their intended destination. Such trades amounted to more than half of total exports from the EU/UK to Armenia and the Kyrgyz Republic. The incidence of lost-in-transit trade was 30 to 50 percent greater for product groups subject to EU sanctions. Following restrictions on trans-shipment of dual-use goods through Russia introduced in 2023, the “missing” trade declined somewhat across all types of goods.

“Can Trade Sanctions Be Enforced?”

Daniel Berkowitz

University of Pittsburgh

Laura Liu

University of Pittsburgh

Guillermo Lezama

University of Pittsburgh

Abstract

The Office of Foreign Assets Control (OFAC) issues civil penalties to companies for engaging in business transactions with foreign countries and persons sanctioned by the US government. Following Becker’s (1968) prediction that large penalties are deter illegal activity, penalties in the top quartile caused a value decline, in absolute value terms, that far exceeded a company’s legal costs. And companies charged big penalties had lower EBIT than their industry peers for a period of four years after the penalty announcement. Consistent with the view that investors and consumers are concerned more about transgressions that can directly affect them versus broad moral issues, there was no substantial difference in EBIT losses for companies that were punished for dealing with “bad” countries and actors such as Iran and the Taliban versus other companies. However, EBIT losses for companies that funded narcotics activities persisted for five and more years after the penalty announcement and there was no such effect in the other companies.