Why did Russian economy not collapse under sanctions: Pre-war evidence

Konstantin Egorov

No 102, SAFE Policy Letters from Leibniz Institute for Financial Research SAFE

Abstract: 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

Keywords: Sanctions; Russian Economy; Commodities (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cis, nep-ger and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safepl:102

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