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Bearing the cost of politics: Consumer prices and welfare in Russia

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  • Hinz, Julian
  • Monastyrenko, Evgenii

Abstract

In August 2014, the Russian Federation implemented an embargo on select food and agricultural imports from Western countries in response to previously imposed economic sanctions. In this paper we quantify the effect of this embargo on consumer prices and welfare in Russia. We provide evidence for the direct effect on monthly consumer prices with a difference-in-differences approach. The embargo caused prices of embargoed goods to rise by up to 7.7% – 14.9% in the short run and by on average 2.6% – 8.1% until at least 2016. The results further suggest the shock was transmitted to non-embargoed sectors through domestic input-output linkages. We then construct a general equilibrium Ricardian model of trade with input-output linkages and goods that are tradable, non-tradable or embargoed. The model-based counterfactual analysis predicts the overall price index in Russia to have increased by 0.33% and welfare to have declined by 1.84% due to the embargo.

Suggested Citation

  • Hinz, Julian & Monastyrenko, Evgenii, 2022. "Bearing the cost of politics: Consumer prices and welfare in Russia," Journal of International Economics, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:inecon:v:137:y:2022:i:c:s0022199622000137
    DOI: 10.1016/j.jinteco.2022.103581
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    Cited by:

    1. Gabriel Felbermayr & Hendrik Mahlkow & Alexander Sandkamp, 2023. "Cutting through the value chain: the long-run effects of decoupling the East from the West," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 75-108, February.
    2. Sonali Chowdhry & Julian Hinz & Katrin Kamin, 2022. "Brothers in arms: The value of coalitions in sanctions regimes," RSCAS Working Papers 2022/62, European University Institute.
    3. Gold, Robert & Hinz, Julian & Valsecchi, Michele, 2023. "To Russia with love? The impact of sanctions on regime support," Kiel Working Papers 2212, Kiel Institute for the World Economy (IfW Kiel).
    4. Crozet, Matthieu & Hinz, Julian, 2023. "Blowback: The effect of sanctions on democratic elections," Kiel Working Papers 2246, Kiel Institute for the World Economy (IfW Kiel).
    5. Banse, Martin & Duric, Ivan & Götz, Linde & Laquai, Verena, 2019. "From the Russian food import ban to free trade from Lisbon to Vladivostok - will farmers benefit?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 12(4), pages 20-31.
    6. Ricardo Hausmann & Ulrich Schetter & Muhammed A. Yildirim, 2022. "On the Design of Effective Sanctions: The Case of Bans on Exports to Russia," CID Working Papers 417, Center for International Development at Harvard University.
    7. Crozet, Matthieu & Hinz, Julian & Stammann, Amrei & Wanner, Joschka, 2021. "Worth the pain? Firms’ exporting behaviour to countries under sanctions," European Economic Review, Elsevier, vol. 134(C).
    8. Görg, Holger & Jacobs, Anna & Meuchelböck, Saskia, 2023. "Who is to suffer? Quantifying the impact of sanctions on German firms," Kiel Working Papers 2248, Kiel Institute for the World Economy (IfW Kiel).
    9. Anna Miromanova, 2023. "The effectiveness of embargoes: Evidence from Russia," The World Economy, Wiley Blackwell, vol. 46(4), pages 906-940, April.
    10. Simola, Heli, 2022. "Made in Russia? Assessing Russia's potential for import substitution," BOFIT Policy Briefs 3/2022, Bank of Finland Institute for Emerging Economies (BOFIT).
    11. Gustavo de Souza & Naiyuan Hu & Haishi Li & Yuan Mei, 2022. "(Trade) War and Peace: How to Impose International Trade Sanctions," Working Paper Series WP 2022-49, Federal Reserve Bank of Chicago.
    12. Shon Ferguson & David Ubilava, 2022. "Global commodity market disruption and the fallout," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(4), pages 737-752, October.
    13. Simone Cigna & Philipp Meinen & Patrick Schulte & Nils Steinhoff, 2022. "The impact of US tariffs against China on US imports: Evidence for trade diversion?," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 162-173, January.
    14. Anna Miromanova, 2023. "Quantifying the trade‐reducing effect of embargoes: Firm‐level evidence from Russia," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 1121-1160, August.
    15. Berthou Antoine, 2023. "International sanctions and the dollar: Evidence from trade invoicing," Working papers 924, Banque de France.
    16. Gustavo de Souza & Naiyuan Hu & Haishi Li & Yuan Mei, 2023. "(Trade) War and Peace: How to Impose International Trade Sanctions," CESifo Working Paper Series 10477, CESifo.
    17. Görg, Holger & Jacobs, Anna & Meuchelböck, Saskia, 2023. "Who Is to Suffer? Quantifying the Impact of Sanctions on German Firms," IZA Discussion Papers 16146, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Embargo; Sanctions; Consumer prices; Trade policy; Sectoral linkages;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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