Do counter-sanctions in agriculture promote growth? Evidence from Russia

Abstract

ABSTRACTThis study evaluates the effect of the Russian agri-food embargo introduced in 2014. The embargo was expected to boost growth in Russian agriculture due to an import substitution policy. To isolate its effect on the Russian agricultural growth rate from other factors like currency devaluation, overall economic stagnation and external financial sanctions, we used the difference-in-differences method applied to regional-level data (2006–2017). The results reveal a positive effect of the embargo on agricultural growth. However, this effect did not cause long-term growth and was observed in 2015–2016. An additional acceleration in the growth rate of agriculture gross value added by 5.1 pp occurred across all Russian regions in 2015. A more prolonged and considerable two-year effect is found for regions that are key Russian agricultural producers (+12.3 pp), regions specialized in cattle breeds and livestock systems (+11.5 pp) and regions with a high share of agricultural holdings (+7.5 pp). The possible reasons of the short-term effect from agri-food embargo are sudden nature of the policies and absence of long-term prospects that undermined potential investments. Another possible reason is a lack of a corresponding industrial policy to incentivize agricultural equipment production.