International Sanctions, Trade Integration, and Macroeconomic Indicators: Sectoral Evidence from Russia

This study investigates the effects of geopolitical risk, foreign direct investment (FDI), exchange rate dynamics, and international sanctions on the sectors’ global value chains (GVCs) participation for the Russian economy. Panel data across eight selected sectors was used. Data were analyzed using descriptive and Difference-in-Difference method. The study finds no significant impact of geopolitical risks on sectoral GVC participation. This implies there is an evidence of short term resilience or perhaps internal substitution strategies. However, a rise in exchange rate (depreciation) significantly increase GVC forward participation. FDI as a percentage of GDP exhibit a positive but statistically weak influence on forward GVC participation, highlighting the partial effectiveness of investment-led integration under sanctions. Policy interventions on the treated sectors did not yield measurable gains in trade integration following sanctions. Stark disparities exist in the sectoral analysis. Capital-intensive and export-oriented sectors like petroleum and electricity recorded significantly higher GVC participation relative to wood, while textiles and food processing lagged behind, indicating evidence of vulnerabilities in low-tech and domestically dependent industries. It is recommended that policy meant to stabilize domestic currency and promote a competitive currency should be prioritized to maintain Russia’s GVC integration under sanctions. However, long term sustainability hinge on sector-specific strategies and her ability to restore foreign direct investment.