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What Goes Around Comes Around: The Effects of Sanctions on Swedish Firms in the Wake of the Ukraine Crisis

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Abstract

This paper focuses on the effects of sanctions on Swedish firms' sales across markets, as well as sanctions’ effects on their domestic production. As a case study, the paper uses sanctions imposed on Russia and by Russia in 2014. The results suggest that the total costs of these sanctions due to a drop in sales for Swedish firms amounts to around 1 billion SEK in 2013 prices, which implies a rather limited impact on the Swedish economy overall, which amounted to a total of around 4000 billion SEK in 2013. The total impact may be divided into a target effect and a sender effect. The target effect is reflected in a 65% drop in sales of banned products in the Russian market, while the sender effect on exports outside Russia was less important. The ripple effects on other markets of these sanctions were, however, asymmetrical and complex. Sales on the domestic market was on average intact while exports to markets facing the same type of sanctions fell. The most vulnerable firms could face a loss in sales of more than 40\% of their value added, and the most important firm-level mechanism, as to how firms responded in their domestic production, was financial distress. I found, however, an additional mechanism within firms regarding their export response on markets other than Russia, since the negative impact was concentrated on their fringe products, while their core business remained intact after the sanctions were implemented.

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  • Gullstrand, Joakim, 2018. "What Goes Around Comes Around: The Effects of Sanctions on Swedish Firms in the Wake of the Ukraine Crisis," Working Papers 2018:28, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2018_028
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    2. Jerg Gutmann & Matthias Neuenkirch & Florian Neumeier, 2024. "Do China and Russia undermine Western sanctions? Evidence from DiD and event study estimation," Review of International Economics, Wiley Blackwell, vol. 32(1), pages 132-160, February.
    3. Silva, Thiago Christiano & Wilhelm, Paulo Victor Berri & Tabak, Benjamin Miranda, 2023. "Trade matters except to war neighbors: The international stock market reaction to 2022 Russia’s invasion of Ukraine," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Tibor Besedeš & Stefan Goldbach & Volker Nitsch, 2024. "Smart or smash? The effect of financial sanctions on trade in goods and services," Review of International Economics, Wiley Blackwell, vol. 32(1), pages 223-251, February.
    5. Drott, Constantin & Goldbach, Stefan & Nitsch, Volker, 2024. "The effects of sanctions on Russian banks in TARGET2 transactions data," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 38-51.
    6. Besedeš, Tibor & Goldbach, Stefan & Nitsch, Volker, 2021. "Cheap talk? Financial sanctions and non-financial firms," European Economic Review, Elsevier, vol. 134(C).
    7. Jerg Gutmann & Matthias Neuenkirch & Florian Neumeier, 2024. "Political Economy of International Sanctions," Research Papers in Economics 2024-07, University of Trier, Department of Economics.
    8. repec:zbw:bofitp:2021_005 is not listed on IDEAS
    9. 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).
    10. Juan de Lucio & Raúl Mínguez & Asier Minondo & Francisco Requena, 2024. "Reducing trade with Russia: Sanctions vs. reputation," Working Papers 2406, Department of Applied Economics II, Universidad de Valencia.
    11. 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).
    12. Gutmann, Jerg & Neuenkirch, Matthias & Neumeier, Florian, 2023. "The economic effects of international sanctions: An event study," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1214-1231.
    13. 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.
    14. 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.
    15. Davydov, Denis & Sihvonen, Jukka & Solanko, Laura, 2021. "Who cares about sanctions? Observations from annual reports of European firms," BOFIT Discussion Papers 5/2021, Bank of Finland, Institute for Economies in Transition.
    16. Meyer, Klaus E. & Fang, Tony & Panibratov, Andrei Y. & Peng, Mike W. & Gaur, Ajai, 2023. "International business under sanctions," Journal of World Business, Elsevier, vol. 58(2).
    17. 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.
    18. Davydov, Denis & Sihvonen, Jukka & Solanko, Laura, 2021. "Who cares about sanctions? Observations from annual reports of European firms," BOFIT Discussion Papers 5/2021, Bank of Finland Institute for Emerging Economies (BOFIT).

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    More about this item

    Keywords

    Sanction; embargo; export; production; Sweden;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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