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

Abstract

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%.

The impact of US tariffs against China on US imports: Evidence for trade diversion?

“…On the other hand, estimation results by Dai et al (2014) suggest that FTAs indeed divert trade away from nonparticipating countries, while they also indicate that such effects are generally stronger for domestic producers. Other recent studies exploit temporary trade policy measures or economic sanctions in order to estimate trade diversion effects from monthly data using a reduced-form difference-in-differences setup (e.g., Carter & Steinbach, 2018;Hinz & Monastyrenko, 2019). While these studies present evidence for trade diversion effects, the products affected by these policy changes are typically rather homogeneous goods (such as agricultural products) which may be relatively easy to substitute on the world market also in the short-run.…”

“…11 11 Carter and Steinbach (2018) and Hinz and Monastyrenko (2019) employ comparable setups in the context of trade diversion effects. …”

Cutting Through the Value Chain: The Long-Run Effects of Decoupling the East from the West

“…Through an embargo, products become nontradable across country pairs. The counterfactual analysis of the impact of sanctions on trade flows is often modelled by introducing non-tradable sectors (Etkes and Zimring, 2015;Crozet and Hinz, 2020;Hinz and Monastyrenko, 2022). We show that a doubling of NTBs acts almost as an embargo, even though it does not completely reduce trade flows to zero across country pairs.…”

Global commodity market disruption and the fallout

“…Evidence suggests that sanctions and embargoes, or any policy interventions that lead to market disruptions, threaten food security of the most vulnerable households (Anderson, 2022), primarily through higher prices for goods that were previously imported. Hinz and Monastyrenko (2022) find that the price of embargoed goods in Russia rose by between 8 and 15 per cent in the short run. In the case of the Gaza trade embargo of 2007–2010, Etkes and Zimring (2015) find that the consumer price index (of which food imports constitute nearly half of household expenditures) increased by over 10% compared with the West Bank counterfactual economy.…”