Investment under Stormy Skies: The Case of Russian Firms during 2004-2016

Sumru Altug and Sevcan Yesiltas

No 16646, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this study, we quantify the effects of uncertainty on investment decisions for the Russian economy. We employ an empirical specification where the dynamics of investment under uncertainty are captured by an error correction model of investment. We use a rich panel of Russian non-financial firms which is uniquely suited to studying investment in Russia over the period 2004-2016. We treat the sanctions regime instituted in 2014 against entities in Russia as a quasi-natural experiment. To control for the heterogeneous effects of the ruble devaluation and oil price decline that occurred concurrently with the sanctions regime, we exploit firm-level and sectoral variation in our micro level data set that covers both large firms and SMEs. We find significant negative effects of uncertainty on the response of investment to demand shocks due to the sanctions regime after isolating the effects of foreign exchange exposure that works through balance sheet channel of the ruble devaluation, the effects of the oil-cost dependence in production as well as of the indirect effects of trade linkages with sanctioning countries on the investment rate

Keywords: Uncertainty; Irreversible investment; Oil prices; Sanctions; Financing constraints; Firm-level data; Russian federation; Ruble devaluation (search for similar items in EconPapers)
JEL-codes: C33 D22 G31 (search for similar items in EconPapers)
Date: 2021-11
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP16646 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:16646

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP16646

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().