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Estimating the economic effects of sanctions on Russia : an allied trade embargo
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1028-3625
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EUI RSC; 2022/36; Global Governance Programme-470; [Global Economics]
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MAHLSTEIN, Kornel, MCDANIEL, Christine, SCHROPP, Simon, TSIGAS, Marinos, Estimating the economic effects of sanctions on Russia : an allied trade embargo, EUI RSC, 2022/36, Global Governance Programme-470, [Global Economics] - https://hdl.handle.net/1814/74493
Abstract
This brief aims to contribute to the ongoing discussion on the use of sanctions as a coercive tool of international policymaking, focusing on the economic effects of the sanctions on the Russian Federation (“Russia”) following its invasion of Ukraine. Using computable general equilibrium modeling, we explore the short- to medium-term economic effects of a possible trade embargo by Allied countries imposed on Russia and Belarus. We consider the Allied trade embargo as a set of comprehensive trade sanctions that includes (i) import-related measures, (ii) export-related measures, (iii) FDI-related measures, and, as a spill-over effect, (iv) increased trade costs between Russia and non-Allies. We find that Russia would sustain sizable losses of upwards of 14% of real GDP from an Allied trade embargo, even in the short run. The largest contribution to Russia’s economic pain results from the exit of Allied foreign direct investment (FDI). Belarus is only marginally affected by an Allied trade embargo. Allied economies are unevenly affected by the sanctions, with real GDP losses between 0.1% and 1.6%. Non-allied economies benefit from some trade diversion, but experience even larger losses from the increased costs of trading and doing business with Russia. For example, real GDP losses to China, India, and Turkey are 0.02%, 0.04%, and 0.13%, respectively. China joining the group of Allies results in greater economic losses for Russia; Allied economies and China would be adversely affected by this move. Finally, Russia would suffer significantly higher losses if it were the party enacting countersanctions, rather than resigning itself to being a sanction target.
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