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Sanctions and misallocation. How sanctioned firms won and Russia lost

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  • Nigmatulina, Dzhamilya

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.

Suggested Citation

  • Nigmatulina, Dzhamilya, 2022. "Sanctions and misallocation. How sanctioned firms won and Russia lost," LSE Research Online Documents on Economics 118037, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:118037
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    Cited by:

    1. 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).
    2. Vicente German-Soto & Gregory Brock, 2023. "Before the isolation: Russian regional β-convergence 2001–2019 before the pandemic and Ukrainian war," Economic Change and Restructuring, Springer, vol. 56(4), pages 2729-2746, August.
    3. Simola, Heli, 2023. "What the literature says about the effects of sanctions on Russia," BOFIT Policy Briefs 8/2023, Bank of Finland Institute for Emerging Economies (BOFIT).
    4. Lastauskas, Povilas & Proškutė, Aurelija & Žaldokas, Alminas, 2023. "How do firms adjust when trade stops?," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 287-307.

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    More about this item

    Keywords

    misallocation; macro development; state-ownership; poltical connections; SOEs; sanctions; Russia;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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