Perception of risks associated with economic sanctions: the case of Russian manufacturing

Abstract

This paper is focused on assessing the risk factors for Russian manufacturing firms posed by sanctions imposed on Russia by the EU, US, and other countries in 2014. While there is an extensive literature assessing the successes and failures of international sanctions on the economies of both those imposing and targeted by sanctions on a macroeconomic level, we are more interested in trying to understand the corporate response -i.e. which firms evaluate the introduction and increasing scale of economic sanctions as a threat to their corporate strategy, and their possible reactions aimed at adjusting to a changing environment due to the geopolitical shock. Our research, based on a recent survey of manufacturing companies, provides evidence that over the last decade Russian manufacturing firms have become much more integrated into the global economy than is commonly assumed, through foreign direct investment, foreign trade (including imports of both technological equipment and raw materials and components), international partnerships, and by extensively supplying foreign companies that operate in Russia. Considering the self-selection effect of the top-performing firms in terms of foreign trade, we can state that sanctions could prove most harmful not only for the targeted firms, but for the entire population of betterperforming and globalized firms involved in foreign trade with the EU and Ukraine. Thus, the impact of the sanctions on the prospects of the Russian manufacturing sector may be very strong over the medium-to-long term.

Russian Business under Economic Sanctions: Is There Regional Heterogeneity?

“…They showed that target companies reduced their revenues by one-third and asset values by half. Golikova and Kuznetsov (2017) confirmed that almost half of the companies investigated felt threatened by the risk of being negatively influenced by sanctions. They found that the size of the company and the geographical area of the business affect the firms' assessment, which especially concerns large companies with access to international markets, engaging in business with 5 The EU's sanctions are moderate because the member countries are afraid of its counter-effects although the impact varies among member countries (Hasselbach, 2014;Veebel and Markus, 2016).…”

“…Ahn and Ludema (2017) and Golikova and Kuznetsov (2017) are among them. To tackle this research question, we gathered data by conducting an interview survey of Russian regional enterprises in late 2015.…”

“…Second, this study will focus on the regional aspects of the sanctions. As Golikova and Kuznetsov (2017) pointed out, its impact varies depending on the characteristics of economic agents, as much as other economic shocks. The characteristics necessarily include geographical factor where economic agents are located because Russia, has a tremendous territory, spreading from Europe to Asia.…”

Sanctions and the Russian stock market

“…As for the influence of sanctions on companies in individual economy sectors, Golikova and Kuznetsov (2016) demonstrate that Russian companies most heavily involved in trade and technological chains with the European Union and the Ukraine will be hit the hardest by the sanctions. Sectoral sanctions may also cause economic disintegration with traditional trade partners, and sanctions against the defense industry may result in an increased brunt of defense spending for the country (Klinova and Sidorova, 2014).…”

The effect of Russia’s economic crisis and import ban on its agricultural and food sector

“…The International Monetary Fund (IMF, 2015), Gurvich and Prilepskiy (2015), Mau and Ulyukaev (2015), and Mau (2017) examined how these various crisis-related events have affected Russia's overall economy, while Golikova and Kuznetsov (2017) investigated the impact specifically on manufacturing. Wegren, Nilssen, and Elvestad (2016) examined how Russian food security policy, which focuses on agricultural import substitution and self-sufficiency, has impacted the agricultural and food sector since Russia created its Doctrine on Food Security in 2010.…”