Perception of Risks Associated with Economic Sanctions: The Case of Russian Manufacturing

This paper is focused on assessing the factors of risks for Russian manufacturing firms due to the sanctions imposed on Russia by the EU, US and other countries in 2014. While there is extensive literature on assessing the successes and failures of international sanctions on the economies of both senders and targets on a macroeconomic level (Hufbauer et al., 2007; Drezner 1998, 2003; Morgan et al, 2009; Krustev, 2010; Morgan et al, 2009 among others), we are more interested in trying to understand the corporate response, i.e. which firms evaluate the introduction and increasing scale of economic sanctions as a threat to their corporate strategy and their possible reactions aimed at adjusting to a changing environment due to the geopolitical shock. Our research, based on a recent survey of manufacturing companies, provides evidence that Russian manufacturing firms have in the last decade become much more integrated into the global economy than is commonly assumed, via FDI, foreign trade, including both the importing of technological equipment and intermediates, via establishing international partnerships and extensively supplying foreign companies which operate in Russia. Considering the self-selection effect of the top performing firms in terms of foreign trade, we can state that sanctions could be the most harmful effect for the better performing and globalized firms and, thus, the impact of the sanctions on the prospects of the Russian manufacturing sector may be very strong in the medium and long-term perspectives