IDEAS home Printed from https://ideas.repec.org/a/oup/ecpoli/v35y2020i101p97-146..html
   My bibliography  Save this article

Friendly fire: the trade impact of the Russia sanctions and counter-sanctions

Author

Listed:
  • Matthieu Crozet
  • Julian Hinz

Abstract

SUMMARYEconomic sanctions are a frequently used instrument of foreign policy. In a diplomatic conflict, they aim to elicit a change in the policies of a foreign government by damaging their economy. Sanctions, however, are also likely to affect the sanctioning country. This paper evaluates these costs, in terms of export losses, for the diplomatic crisis between the Russian Federation and 37 countries over the conflict in Ukraine that started in 2014. We first gauge the impact of the diplomatic conflict using a traditional trade framework and quantify the trade losses in a general equilibrium counterfactual analysis. Losses for the Russian Federation amount to US$53 billion or 7.4% of predicted total exports from 2014 until the end of 2015. Western sanctioning countries, however, have also been impacted with an estimated loss of US$42 billion, 0.3% of their total exports. Interestingly, we find that the bulk of the impact stems from products that are not directly targeted by Russian retaliation, an effect that we coin friendly fire – an unintended, largely self-inflicted cost for Western sanctioning countries. We investigate the underlying mechanism at the product- and firm-level data. Results indicate that the drop of Western exports has not been driven by a change in Russian consumers’ preferences, but mainly by an increase in country risk affecting international transactions with Russia.

Suggested Citation

  • Matthieu Crozet & Julian Hinz, 2020. "Friendly fire: the trade impact of the Russia sanctions and counter-sanctions," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 35(101), pages 97-146.
  • Handle: RePEc:oup:ecpoli:v:35:y:2020:i:101:p:97-146.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/epolic/eiaa006
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A., 1982. "The 1807–1809 Embargo Against Great Britain," The Journal of Economic History, Cambridge University Press, vol. 42(2), pages 291-308, June.
    2. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 711-744.
    3. Berman, Nicolas & Berthou, Antoine & Héricourt, Jérôme, 2015. "Export dynamics and sales at home," Journal of International Economics, Elsevier, vol. 96(2), pages 298-310.
    4. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "No guarantees, no trade: How banks affect export patterns," Journal of International Economics, Elsevier, vol. 108(C), pages 338-350.
    5. Drezner,Daniel W., 1999. "The Sanctions Paradox," Cambridge Books, Cambridge University Press, number 9780521644150, September.
    6. Guy Michaels & Xiaojia Zhi, 2010. "Freedom Fries," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 256-281, July.
    7. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    8. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2012. "The Geography of Conflicts and Regional Trade Agreements," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 1-35, October.
    9. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 437-492.
    10. Drezner,Daniel W., 1999. "The Sanctions Paradox," Cambridge Books, Cambridge University Press, number 9780521643320, September.
    11. repec:hal:wpspec:info:hdl:2441/10149 is not listed on IDEAS
    12. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Civil Wars and International Trade," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 541-550, 04-05.
    13. Pol Antràs & C. Fritz Foley, 2015. "Poultry in Motion: A Study of International Trade Finance Practices," Journal of Political Economy, University of Chicago Press, vol. 123(4), pages 853-901.
    14. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, vol. 97(2), pages 351-355, May.
    15. Sajjad Faraji Dizaji & Peter A G van Bergeijk, 2013. "Potential early phase success and ultimate failure of economic sanctions," Journal of Peace Research, Peace Research Institute Oslo, vol. 50(6), pages 721-736, November.
    16. Caruso Raul, 2003. "The Impact of International Economic Sanctions on Trade: An Empirical Analysis," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 9(2), pages 1-36, April.
    17. James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-2186, December.
    18. Nicolas Berman & Vincent Rebeyrol & Vincent Vicard, 2019. "Demand Learning and Firm Dynamics: Evidence from Exporters," The Review of Economics and Statistics, MIT Press, vol. 101(1), pages 91-106, March.
    19. Dreger, Christian & Fidrmuc, Jarko & Kholodilin, Konstantin & Ulbricht, Dirk, 2015. "The Ruble between the hammer and the anvil: Oil prices and economic sanctions," BOFIT Discussion Papers 25/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    20. Douglas A. Irwin, 2005. "The Welfare Cost of Autarky: Evidence from the Jeffersonian Trade Embargo, 1807–09," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 631-645, September.
    21. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "International trade, risk and the role of banks," Journal of International Economics, Elsevier, vol. 107(C), pages 111-126.
    22. Jamal Ibrahim Haidar, 2017. "Sanctions and export deflection: evidence from Iran," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(90), pages 319-355.
    23. Sonal S. Pandya & Rajkumar Venkatesan, 2016. "French Roast: Consumer Response to International Con flict--Evidence from Supermarket Scanner Data," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 42-56, March.
    24. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2012. "Firms and the global crisis: French exports in the turmoil," Journal of International Economics, Elsevier, vol. 87(1), pages 134-146.
    25. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 2009. "Economic Sanctions Reconsidered, 3rd Edition softcover with CD," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4310, January.
    26. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    27. Christian Dreger & Konstantin Kholodilin, 2015. "The Ruble between the Hammer and the Anvil: The Impact of Oil Prices and Economic Sanctions," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 5(44), pages 587-591.
    28. James E. Anderson & Mario Larch & Yoto V. Yotov, 2015. "Estimating General Equilibrium Trade Policy Effects: GE PPML," CESifo Working Paper Series 5592, CESifo.
    29. Fally, Thibault, 2015. "Structural gravity and fixed effects," Journal of International Economics, Elsevier, vol. 97(1), pages 76-85.
    30. Julian Hinz, 2023. "The ties that bind: geopolitical motivations for economic integration," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(1), pages 51-100, February.
    31. Demir, Banu & Javorcik, Beata, 2018. "Don’t throw in the towel, throw in trade credit!," Journal of International Economics, Elsevier, vol. 111(C), pages 177-189.
    32. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2012. "Firms and the global crisis: French exports in the turmoil," Journal of International Economics, Elsevier, vol. 87(1), pages 134-146.
    33. Martin, Julien & Mayneris, Florian, 2015. "High-end variety exporters defying gravity: Micro facts and aggregate implications," Journal of International Economics, Elsevier, vol. 96(1), pages 55-71.
    34. repec:hal:spmain:info:hdl:2441/10149 is not listed on IDEAS
    35. repec:hal:spmain:info:hdl:2441/f4rshpf3v1umfa09lb0k114o5 is not listed on IDEAS
    36. repec:zbw:bofitp:2015_025 is not listed on IDEAS
    37. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 2009. "Economic Sanctions Reconsidered, 3rd Edition (paper)," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4129, April.
    38. Gary Clyde Hufbauer & Barbara Oegg, 2003. "The Impact of Economic Sanctions on US Trade: Andrew Rose's Gravity Model," Policy Briefs PB03-04, Peterson Institute for International Economics.
    39. Timoshenko, Olga A., 2015. "Learning versus sunk costs explanations of export persistence," European Economic Review, Elsevier, vol. 79(C), pages 113-128.
    40. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 511-540, July.
    41. Heilmann, Kilian, 2016. "Does political conflict hurt trade? Evidence from consumer boycotts," Journal of International Economics, Elsevier, vol. 99(C), pages 179-191.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matthieu Crozet & Julian Hinz, 2016. "Collateral Damage: The impact of the Russia sanctions on sanctioning countries’ exports," Working Papers 2016-16, CEPII research center.
    2. Hinz, Julian, 2017. "The cost of sanctions: Estimating lost trade with gravity," Kiel Working Papers 2093, Kiel Institute for the World Economy (IfW Kiel).
    3. 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).
    4. Felbermayr, Gabriel & Kirilakha, Aleksandra & Syropoulos, Constantinos & Yalcin, Erdal & Yotov, Yoto V., 2020. "The global sanctions data base," European Economic Review, Elsevier, vol. 129(C).
    5. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    6. Hinz, Julian & Monastyrenko, Evgenii, 2022. "Bearing the cost of politics: Consumer prices and welfare in Russia," Journal of International Economics, Elsevier, vol. 137(C).
    7. repec:hal:spmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    8. Joakim Gullstrand, 2020. "What goes around comes around: The effects of sanctions on Swedish firms in the wake of the Ukraine crisis," The World Economy, Wiley Blackwell, vol. 43(9), pages 2315-2342, September.
    9. repec:spo:wpmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    10. (ed.), 0. "Research Handbook on Economic Diplomacy," Books, Edward Elgar Publishing, number 16053.
    11. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    12. repec:spo:wpecon:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    13. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    14. Frank, Jonas, 2018. "The effects of economic sanctions on trade: New evidence from a panel PPML gravity approach," Hohenheim Discussion Papers in Business, Economics and Social Sciences 17-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    15. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2021. "How do Firms Respond to Long-term Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202106020700001118, Iowa State University, Department of Economics.
    16. Felbermayr, Gabriel & Syropoulos, Constantinos & Yalcin, Erdal & Yotov, Yoto, 2019. "On the Effects of Sanctions on Trade and Welfare: New Evidence Based on Structural Gravity and a New Database," School of Economics Working Paper Series 2019-3, LeBow College of Business, Drexel University.
    17. repec:wsr:wpaper:y:2017:i:174 is not listed on IDEAS
    18. A. Berthou & G. Horny & J-S. Mésonnier, 2018. "Dollar Funding and Firm-Level Exports," Working papers 666, Banque de France.
    19. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2020. "How do Firms Respond to Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202011250800001118, Iowa State University, Department of Economics.
    20. Julian Hinz, 2023. "The ties that bind: geopolitical motivations for economic integration," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(1), pages 51-100, February.
    21. Berthou, Antoine & Horny, Guillaume & Mésonnier, Jean-Stéphane, 2022. "The real effects of invoicing exports in dollars," Journal of International Economics, Elsevier, vol. 135(C).
    22. Hinz, Julian, 2017. "Friendly fire: Zu den Handelsauswirkungen der Russlandsanktionen," Kiel Insight 2017.17, Kiel Institute for the World Economy (IfW Kiel).
    23. Gern, Klaus-Jürgen & Hauber, Philipp & Kooths, Stefan & Stolzenburg, Ulrich, 2017. "Weltkonjunktur im Winter 2017 - Weltwirtschaft weiter im Aufschwung [World Economy Winter 2017 - World economic upswing continues]," Kieler Konjunkturberichte 37, Kiel Institute for the World Economy (IfW Kiel).
    24. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    25. Hyejoon Im, 2021. "Product heterogeneity in international terms of payment," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1661-1686, October.

    More about this item

    Keywords

    F51; F14; F13; F52;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:ecpoli:v:35:y:2020:i:101:p:97-146.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/cebruuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.