Working papers

"Quantifying the Trade Reducing Effect of Embargoes: Firm Level Evidence from Russia" (JMP)

( 2019 Philadelphia Sanctions workshop slides can be found here)

A large number of countries imposed economic sanctions on Russia in February 2014 for its intervention in Ukraine. In retaliation, six months later Russia responded with an import embargo which targets imports of certain products from the sanctioning countries. While other studies have estimated the impacts of the economic sanctions on Russia, this paper examines the impact of the self-imposed embargo on Russian firms. Using a novel firm level dataset on all international trade transactions reported monthly between 2010 and 2015, I propose a triple difference estimation strategy to identify the effect of the retaliatory embargo on extensive and intensive margins of trade. In particular, I estimate the exit rate of Russian firms importing embargoed goods from sanctioning countries and their switching patterns to trading with non-sanctioning countries (extensive margin effects). Intriguingly, not all firms cut their trade relations with the sanctioning countries. For the subset of firms that manage to stay in the market, the value of imports in embargoed goods falls, on average, by 13 percent (intensive margin effects). I find no evidence of unintended consequences of the embargo on the imports of other product categories. Taken together, Russia has been able to mitigate some but not all the costs to trade resulting from the self-imposed embargo.

Following the Crimean conflict of 2014, Russia was sanctioned by a number of OECD countries. Russia retaliated by imposing an embargo on 48 agricultural HS-4 level products from the sanctioning countries. Because it is rare that a sanctioned country has some degree of market power (like Russia), this incident created a unique and important new setting to evaluate, as such an intense interplay of sanctions has not happened previously. Presumably, Russia's goal in retaliating was to punish the sanctioning countries while limiting the costs to itself. I undertake empirical analysis to estimate the effectiveness of the embargo, i.e., if it was able to negatively impact the sanctioning countries by eliminating imports of embargoed goods from these countries and the optimality of the chosen set of embargoed products, i.e., whether substitution of imports of embargoed goods towards the non-sanctioning countries is possible. I find that the embargo was not fully effective in shutting down the imports of embargoed goods from the sanctioning countries. Estimated losses for the imports of the embargoed goods are approximately 13 billion USD and the substitution towards the non-sanctioning countries is available only for 50% of this amount. Additionally, I find that a large spillover effect manifests through the decline in Russian exports. Extensive heterogeneity analysis for both, exports and imports uncovers some interesting driving forces behind the embargo. This study emphasizes the importance of understanding the magnitude of the disturbances caused by embargoes, as even the embargoes that target a relatively small set of products causes spillovers, significantly increasing the costs of political games played by the involved governments.

Work in Progress

"Russia's Accession to WTO: Exporter and Importer Dynamics"

Joint work with Anca Cristea

Russia joined World Trade Organization in 2012, after 19 years of negotiations. Russia is a large country, for which foreign trade constitutes 24% of its GDP, and the waning interest in the membership seems counter-intuitive to the theoretical behavior of a large country, which should want to take advantage of trade liberalization. One explanation could be that, in line with Rose (2004) finding, countries are not expecting much from the membership. On the other hand, a certain reluctance of facing increased competition for the domestic firms, which results in their decreased welfare, could prevent the governments from pursuing the accession more actively. In this paper we provide some preliminary evidence that Russia's accession to the WTO had positive effects on Russian exporters and importers along several margins, counter to Rose's findings. We observe an increase in the number of exporters following the accession, increase in the number of partner countries for both types of firms, and a significant increase in the number of imported products. The evidence of the effects of WTO on average export and import flows of firms is mixed. We also find some evidence in support of the claim that embargo was a protectionist impulse to protect Russian exporters and importers (and presumably domestic producers) from the increased competition following the accession to the WTO, rather than a purely retaliation instrument to the sanctions. These results point us in the future direction of this work: participation in the WTO does not necessarily mean the country will derive full benefits from it, because strong protectionist impulses diminish the positive effects of trade liberalization.