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Sanctions and misallocation. How sanctioned firms won and Russia lost

Dzhamilya Nigmatulina

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Using a unique natural experiment of staggered firm-level sanctions against Russia in 2014-2020 and the data on over 900,000 Russian firms, I estimate the effect of sanctions on targeted firms and on the aggregate economy. Surprisingly, sanctioned firms on average gained 38% more capital inputs after sanctions relative to the industry trends. The effect is in part driven by sanctioned state-owned firms, getting 60% more capital relative to non-sanctioned firms. Using additional data on subsidies and government contracts, I find that this result is explained by the government protection of targeted firms, that more than compensated for a negative sanctions shock. However, the sanctioned firms were already too large and had too much capital prior to sanctions. I use a heterogeneous firm framework to show that the distortions between sanctioned and non-sanctioned firms, which existed before the sanctions, got exacerbated after the joint effect of sanctions and government protection. I combine the causal estimates with the quantitative frame-work and estimate that on the aggregate, the Russian TFP dropped at least by 0.33% reaching 3% in relevant sectors.

Keywords: misallocation; macro development; state-ownership; political connections; SOEs; sanctions; Russia (search for similar items in EconPapers)
Date: 2022-11-23
New Economics Papers: this item is included in nep-bec, nep-cis and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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