Modification of Russia's Trade Pattern in 2014 and Beyond

- 26 June 2020

Trade topics: Economic Sanctions, International Trade, Gravity Theory of Trade, Russia

This research examines the impact of macroeconomic shocks and political measures, including sanctions, imposed by western countries on trade flows, commodity compositions, and import-export flows to the Russian Federation. To this end, we use 2012-2016 panel date to produce gravity equations containing the determining features of Russia’s import-export volumes of agricultural, raw material, and industrial goods. Our results confirm that macroeconomic shocks led to a significant reduction in trade. A conservative estimate of the marginal impact ranges between 9% and 34%, depending on the sector and the direction of trade. This study also shows that trade-restrictive measures made a significant contribution to trade reductions. Open diplomatic conflicts had a particularly negatively strong impact on Russia’s trade with Ukraine and Turkey, and the marginal effect was in the range of 30%-50%. The introduction of a food embargo by Russia resulted in a significant reduction in agricultural imports from developed countries, although the decrease in Russian trade with this group in other sectors can largely be explained by the negative impact of macroeconomic shocks. These findings demonstrate that Russia’s trade in some product groups has been reoriented to countries in Asia, Africa, Latin America, and the Eurasian Economic Union.