The effectiveness of embargoes: Evidence from Russia

While sanctions have been an increasingly popular instrument of Western foreign policy over the past several decades, retaliatory measures by non‐Western targets of Western sanctions are a more recent development. In this study, I focus on the first such incident in recent history: the Russian retaliatory embargo imposed in August 2014 in response to the anti‐Russian sanctions that have been in place since March 2014. I formulate a comprehensive approach to analysing the impacts of such retaliations on trade and how retaliating countries deal with lost trade. Towards that goal, I use a quadruple difference approach with high‐dimensional fixed effects to disentangle various effects of the retaliatory embargo on the extensive and intensive margins of trade. I find that such retaliation comes at a cost to both the retaliating country and the target of retaliation, while not being effective as Russian sanctions are still in place today. I estimate that the total loss of trade from such retaliation amounts to about 42 billion USD in the first 1.5 years after the imposition of the embargo. The disturbances caused by such retaliation destabilise bilateral trade by causing negative spillovers and significantly increase the costs of retaliation as an economic policy or political strategy. Note: This paper was written prior to the Russian invasion in Ukraine on 24 February 2022.