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The Economics of International Sanctions

Paper Session

Sunday, Jan. 5, 2025 10:15 AM - 12:15 PM (PST)

Hilton San Francisco Union Square, Continental Ballroom 9
Hosted By: American Economic Association
  • Chair: Vasily Korovkin, Pompeu Fabra University

Decision to Leave: Economic Sanctions and Intermediated Trade

Maxim Chupilkin
,
European Bank for Reconstruction and Development
Beata Javorcik
,
European Bank for Reconstruction and Development
Aleksandra Peeva
,
Humboldt University
Alexander Plekhanov
,
European Bank for Reconstruction and Development

Abstract

This paper documents a substantial change in the composition, routing and unit values of Russia’s imports in the aftermath of comprehensive trade sanctions imposed on Russia. The analysis is based on transaction-level records of Russia’s imports from economies outside the Eurasian Economic Union (EEU) which include data on trademarks. The data shows a sharp drop in imports of goods under ”Western” trademarks following the introduction of sanctions in March 2022. A significant share of those imports, previously sold by traders in sanctioning economies, were ”re-routed” via intermediaries in neutral economies. Much of this trade involved new routes – combinations of products, trademarks and exporting countries never observed before. This intermediated trade increased significantly more rapidly for industrial capacity goods under international sanctions and dual-use technology offsetting around one fifth of the reduction in the direct trade in those goods under Western trademarks. Switching to neutral trademarks within the same product offset a further 23-40 percent of the reduction in imports of those goods under Western trademarks. The unit values of goods under Western trademarks saw higher increases, of up to 35 percentage points, compared with similar goods under neutral trademarks. Both the shares of intermediaries in trade and mark-ups were significantly higher for firms with more restrictive self-declared attitudes to serving the Russian market.

Trade Sanctions against Russia: Light Strokes or Massive Blows?

Feodora Teti
,
Ludwig Maximilian University of Munich
Lisa Scheckenhofer
,
IFO Institute
Joschka Wanner
,
Kiel Institute

Abstract

N/A

Trade Sanctions

Konstantin Egorov
,
University of Antwerp
Vasily Korovkin
,
Pompeu Fabra University
Alexey Makarin
,
Massachusetts Institute of Technology
Dzhamilya Nigmatulina
,
HEC Lausanne

Abstract

How effective are trade sanctions? We examine the economic impact of unprecedented sanctions imposed on Russia following February 2022, when Western countries banned the exports of close to 40% of all country-product varieties Russia had been importing prior to the war. By combining data on the universe of international trade transactions, domestic railway shipments, firm balance sheets, and government procurement data before and after the sanctions’ imposition, we provide the most comprehensive analysis of the economic impact of trade sanctions to date. Using a difference-in-differences approach, we find that the sanctioned country-product imports experienced a sharp 62% decline compared to non-sanctioned import flows following the war’s onset. The total imports of sanctioned products into Russia fell by only a slightly smaller magnitude, suggesting that roundabout trade and substitution only partially compensated the decline in sanctioned imports. Notably, firms that relied on to-be-sanctioned imports saw a 15% reduction in output. This pattern is observed even for firms that are part of military-adjacent supply chains. Overall, our findings suggest that, despite widespread anecdotal evidence that sanctions’ effectiveness was undermined by substitution and evasion, the sanctions on Russian imports had an adverse impact on the Russian economy.

The Economics of Sanctions: How Do They Work in Theory and in Practice?

Oleg Itskhoki
,
University of California-Los Angeles and NBER
Elina Ribakova
,
Peterson Institute for International Economics

Abstract

This paper examines the effectiveness of economic sanctions imposed on Russia, particularly following its 2022 full-scale invasion of Ukraine. Despite the unprecedented scope and scale of these sanctions, their impact on Russia’s economy has been mixed, with only moderate contraction reported by official Russian statistics. We combine an empirical assessment of these sanctions with the development of a theoretical framework to better understand the complexities and trade-offs in their application. Sanctions, while a critical tool of economic statecraft, are not a guaranteed solution to end wars or alter a country’s behavior. To impose effective costs, we advocate for a comprehensive, technocratic approach with clear, measurable objectives, rather than a piecemeal strategy. The efficacy of sanctions depends on factors such as the target country's size and global integration, the sanctioning coalition's unity, the ability to enforce sanctions, and the economic burden on sanctioning nations. The paper underscores the importance of realistic expectations and careful design of sanctions policy on trade, finance and payment systems.

Production Networks with Capital: A Long-Run Analysis

David Baqaee
,
University of California-Los Angeles
Hannes Malmberg
,
University of Minnesota

Abstract

N/A
JEL Classifications
  • F1 - Trade
  • F4 - Macroeconomic Aspects of International Trade and Finance