Why did russian economy not collapse under sanctions: pre-war evidence

  • This Policy Letter presents two event studies based on the pre-war data that foreshadows the remarkable way in which Russian economy was able to withstand the pressure from unprecedented package of international sanctions. First, it shows that a sudden stop of one of the two domestic producers of zinc in 2018 did not lead to a slowdown in the steel industry, which heavily relied on this input. Second, it demonstrates that a huge increase in cost of fuel called mazut in 2020 had virtually no impact on firms that used it, even in the regions where it was hard to substitute it for alternative fuels. This Policy Letter argues that such stability in production can be explained by the fact that Russian economy is heavily oriented toward commodities. It is much easier to replace a commodity supplier than a supplier of manufacturing goods, and many commodity producers operate at high profit margins that allow them to continue to operate even after big increases in their costs. Thus, sanctions had a much smaller impact on Russia than they would have on an economy with larger manufacturing sector, where inputs are less substitutable and profit margins are smaller.

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Author:Konstantin Egorov
URN:urn:nbn:de:hebis:30:3-644862
URL:https://safe-frankfurt.de/policy-center/policy-publications/policy-publ-detailsview/publicationname/why-did-russian-economy-not-collapse-under-sanctions-pre-war-evidence.html
Series (Serial Number):SAFE policy letter (102)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2023
Year of first Publication:2023
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2023/10/06
Tag:Commodities; Russian Economy; Sanctions
Edition:September 2023
Page Number:8
HeBIS-PPN:512796025
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht