Economic Consequences of Sanctions for Targeted and Targeting Countries: Evidence from Russia in 2014 and 2022

Abstract

From the 2000s onwards, the use of sanctions as a policy tool has spiked significantly. Media attention on the issue has also grown extensively, particularly due to the waves of sanctions imposed on Russia from 2014 onwards, most recently following the invasion of Ukraine in 2022. In light of this, I quantitatively examine the economic effects of sanctions on the trade flows and welfare levels of both targeted and targeting countries, as well as the factors which cause variation in such effects, using Russia as a natural experiment. To conduct this analysis, I employ data from the Global Sanctions Database (GSDB) and run Poisson Pseudo Maximum Likelihood (PPML) regressions to estimate the effect of different types of sanctions on trade flows. I leverage these estimates to predict partial and general equilibrium effects of the 2014 and 2022 sanctions imposed on Russia, depending on the type of sanctions applied and the sanctioning coalition involved. My analysis reports that, overall, the sanctions have moderate impacts on both trade flows and real income. However, the magnitude of the effects are significantly influenced by the breadth of sanctions imposed and the extent to which Russia substitutes trade towards partners like China and India. Analyzing the 2014 sanctions, I find that increasing the size of the sanctioning coalition, applying a greater number of types of sanctions, and Russia’s main trade partners joining the sanctioning coalition lead to the biggest predicted welfare losses for Russia, while alleviating income losses for the sanctioning states. I also extend the GSDB forward in time to compare the relative impacts of complete import and bilateral sanctions imposed on Russia in 2022. I find that complete bilateral sanctions are likely to cause considerably larger changes in trade flows and Russian welfare than solely import sanctions, without imposing prohibitive costs on the welfare levels of sanctioning states.