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Bearing the cost of politics: Consumer prices and welfare in Russia

Author

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  • Hinz, Julian
  • Monastyrenko, Evgenii

Abstract

In August 2014, the Russian Federation implemented an embargo on select food and agricultural imports from Western countries in response to the economic sanctions. The measure was designed to harm producers in United States, European Union, Norway, Ukraine, along other Western countries. In this study we quantify the effect of the embargo for welfare and consumer prices in Russia. We first provide evidence for the direct effect on consumer prices with a difference-in-differences approach with a highly detailed monthly dataset of consumer prices in Russia between 2011-2016. The results suggest that the embargo caused consumer prices of embargoed goods to rise in the short run by 8.9% - 12.6%. Regions of Russia with previously above-average levels of food imports from sanctioned countries experienced a stronger impact. In the medium run the effect reduces to 1.2% - 6.3%. The results also indicate that the policy shock has been transmitted to non-embargoed sectors by means of domestic inputoutput production linkages. We then use a Ricardian model of trade with domestic sectoral linkages, trade in intermediate goods and sectoral heterogeneity in production to perform counterfactual simulations, isolate the direct and indirect price effects, and compute welfare measures for a situation without embargo. Our simulations suggest that the self-imposed embargo caused a decline in Russian welfare by 1.88% and an increase in the overall price index by 0.19%.

Suggested Citation

  • Hinz, Julian & Monastyrenko, Evgenii, 2019. "Bearing the cost of politics: Consumer prices and welfare in Russia," Kiel Working Papers 2119, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:2119
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    Cited by:

    1. Chowdhry, Sonali & Hinz, Julian & Kamin, Katrin & Wanner, Joschka, 2022. "Brothers in arms: The value of coalitions in sanctions regimes," Kiel Working Papers 2234, Kiel Institute for the World Economy (IfW Kiel).
    2. Gabriel Felbermayr & Hendrik Mahlkow & Alexander Sandkamp, 2023. "Cutting through the value chain: the long-run effects of decoupling the East from the West," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 75-108, February.
    3. Crozet, Matthieu & Hinz, Julian, 2023. "Blowback: The effect of sanctions on democratic elections," Kiel Working Papers 2246, Kiel Institute for the World Economy (IfW Kiel).
    4. Ricardo Hausmann & Ulrich Schetter & Muhammed A Yildirim, 2024. "On the design of effective sanctions: the case of bans on exports to Russia," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 39(117), pages 109-153.
    5. Banse, Martin & Duric, Ivan & Götz, Linde & Laquai, Verena, 2019. "From the Russian food import ban to free trade from Lisbon to Vladivostok - will farmers benefit?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 12(4), pages 20-31.
    6. Afesorgbor, S. Kwaku & Kornher, Lukas & Santeramo, Fabio, 2023. "The impacts of economic sanctions on food (prices) security: Evidence from targeted countries," 2023: The Future of (Ag-) Trade and Trade Governance in Times of Economic Sanctions and Declining Multilateralism, December 10-12, Clearwater Beach, FL 339511, International Agricultural Trade Research Consortium.
    7. Crozet, Matthieu & Hinz, Julian & Stammann, Amrei & Wanner, Joschka, 2021. "Worth the pain? Firms’ exporting behaviour to countries under sanctions," European Economic Review, Elsevier, vol. 134(C).
    8. Görg, Holger & Jacobs, Anna & Meuchelböck, Saskia, 2023. "Who Is to Suffer? Quantifying the Impact of Sanctions on German Firms," IZA Discussion Papers 16146, Institute of Labor Economics (IZA).
    9. Shon Ferguson & David Ubilava, 2022. "Global commodity market disruption and the fallout," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(4), pages 737-752, October.
    10. Simola, Heli, 2022. "Made in Russia? Assessing Russia's potential for import substitution," BOFIT Policy Briefs 3/2022, Bank of Finland Institute for Emerging Economies (BOFIT).
    11. Anna Miromanova, 2023. "Quantifying the trade‐reducing effect of embargoes: Firm‐level evidence from Russia," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 1121-1160, August.
    12. Simone Cigna & Philipp Meinen & Patrick Schulte & Nils Steinhoff, 2022. "The impact of US tariffs against China on US imports: Evidence for trade diversion?," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 162-173, January.
    13. Antoine Berthou, 2023. "International sanctions and the dollar: Evidence from trade invoicing," Working papers 924, Banque de France.
    14. Gustavo de Souza & Naiyuan Hu & Haishi Li & Yuan Mei, 2023. "(Trade) War and Peace: How to Impose International Trade Sanctions," CESifo Working Paper Series 10477, CESifo.
    15. Gold, Robert & Hinz, Julian & Valsecchi, Michele, 2023. "To Russia with love? The impact of sanctions on regime support," Kiel Working Papers 2212, Kiel Institute for the World Economy (IfW Kiel).
    16. repec:wsr:wpaper:y:2022:i:196 is not listed on IDEAS
    17. Flach, Lisandra & Heiland, Inga & Larch, Mario & Steininger, Marina & Teti, Feodora A., 2023. "Quantifying the partial and general equilibrium effects of sanctions on Russia," Open Access Publications from Kiel Institute for the World Economy 302103, Kiel Institute for the World Economy (IfW Kiel).
    18. Ricardo Hausmann & Ulrich Schetter & Muhammed A Yildirim, 2024. "On the design of effective sanctions: the case of bans on exports to Russia," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 39(117), pages 109-153.
    19. Anna Miromanova, 2023. "The effectiveness of embargoes: Evidence from Russia," The World Economy, Wiley Blackwell, vol. 46(4), pages 906-940, April.
    20. Haishi Li & Zhi Li & Ziho Park & Yulin Wang & Jing Wu, 2024. "To Comply or Not to Comply: Understanding Neutral Country Supply Chain Responses to Russian Sanctions," CESifo Working Paper Series 11110, CESifo.
    21. Gustavo de Souza & Naiyuan Hu & Haishi Li & Yuan Mei, 2022. "(Trade) War and Peace: How to Impose International Trade Sanctions," Working Paper Series WP 2022-49, Federal Reserve Bank of Chicago.
    22. Devadoss, Stephen & Ridley, William, 2024. "Impacts of the Russian invasion of Ukraine on the global wheat market," World Development, Elsevier, vol. 173(C).

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    More about this item

    Keywords

    Trade policy; Embargo; Consumer prices; Sectoral linkages;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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