On the Impact of Sanctions – The Case of Putin’s Russia

The economic effects of sanctions are well-understood: the trade losses incurred by export bans on selected goods and the voluntary stop to commercial relations as well as the financial sector restrictions are hitting the Russian economy hard. Less clear is whether these economic consequences will lead to a more democratic Russia as the empirical literature on the political effects of sanctions is scarce. Robert Gold (IfW Kiel) and colleagues are currently trying to advance research on this question. Results from this research were presented by Robert Gold at our X New Paradigm Workshop and discussed with Klaus-Jürgen Gern and Erdal Yalcin.

Robert Gold’s empirical analysis centres on the example of past sanctions imposed after the illegal annexation of the Crimean Peninsula in 2014. The political effect is gauged through the election outcomes for the ruling party (‘United Russia’) in past presidential and parliamentary elections. Measuring political sentiment in a country with dictatorial rule is a recognizably challenging task. Nonetheless, Robert Gold explained that his difference-in-difference model accounts for existing data irregularities and ensures that the variable measuring the sanctions effect is not structurally correlated with election fraud. The analysis suggests that sanctions which cause trade losses might be linked to higher support for the ruling party. He concluded that, at least in the short run, sanctions seemed to have backfired.

During the subsequent discussion, Erdal Yalcin (HTWG Konstanz) cautioned against the overall framing of the draft paper and how it might be conceived in the broader public debate. He argued that rather than describing the situation of sanctions as “backfiring” (which implicitly ascribes Western societal norms to sanctioned countries), one should understand the nationalistic reaction as “visualizing the attitude of a whole society.” Results from the Global Sanctions Database had shown that in many sanctioned countries the economic repercussions of international isolation had not led to political change. Thus, sanctions on Russia should not be expected to democratise the country. Klaus-Jürgen Gern (IfW Kiel) explained that the comprehensiveness of the recent sanctions will likely lead to a substantial contraction in the magnitude of at least 10 percent of GDP this year and further long-lasting losses in investment, private consumption, etc.