In April 2016, Matthieu Crozet has visited the Chinese University of Hong Kong (CUHK). He will present a paper, co-authored with Julian Hinz, titled “Collateral Damage: The Impact of the 2014 Russian Diplomatic Sanctions on Sanctioning Countries”.
This paper assesses the cost–in terms of destruction of trade flows–of the diplomatic conflict between the Russian Federation and Westerns countries over the 2014 military conflict in Ukraine. Economic sanctions are one of the favorites in the toolbox of foreign policy. Meant to hurt the target country’s economy through artificial trade barriers in the form of restrictions or bans on trade of certain goods and services, severance of financial ties, or an all-out embargo, sanctions are used when diplomacy fails yet military options appear to drastic. The empirical analysis exploits monthly trade data to evaluate the impact of the diplomatic sanctions and retaliations on exports of sanctioning countries. It first gauge the overall impact of the sanctions regime on sanctioning countries using a structural gravity framework. In a second part, it makes use of highly disaggregated French customs data to provide more detailed evidence on the reaction of trading firms. Results show strong and significant effects of both financial and trade sanctions on all types of exports on extensive and intensive margins. However, the Western sanctions had greater consequences on aggregated Western exports than Russian retaliation. The firm-level analysis suggests that the disruption of the provision of trade finance services played an important role.