Sanctions and misallocation. How sanctioned firms won and Russia lost

Dzhamilya Nigmatulina

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Using a unique natural experiment of staggered firm-level sanctions against Russia in 2014-2020 and the data on over 600,000 Russian firms, I estimate the effect of "smart" sanctions on targeted firms and on the aggregate economy. Surprisingly, sanctioned firms on average gained 35% more capital inputs and 21% in revenue after sanctions compared to non-sanctioned firms. Using additional data on subsidies, government contracts and loans, I find that this result is explained by the government protection of targeted firms, that more than compensated for the negative sanctions shock. However, combining the causal estimates with three distinct heterogeneous firm models, I estimate that the Russian TFP dropped up to 1% overall. The sanctioned firms were already too large and had too much capital prior to sanctions, I show with a wedge accounting framework. The joint effect of sanctions and government protection reallocated capital even further towards the targets.

Keywords: misallocation; macro development; state-ownership; poltical connections; SOEs; sanctions; Russia (search for similar items in EconPapers)
JEL-codes: D6 F51 O1 O11 O12 O4 (search for similar items in EconPapers)
Pages: 80 pages
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 (2)

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http://eprints.lse.ac.uk/118037/ Open access version. (application/pdf)

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Working Paper: Sanctions and misallocation. How sanctioned firms won and Russia lost (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:118037

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