Quantifying the trade‐reducing effect of embargoes: Firm‐level evidence from Russia

Abstract

In 2014, Russia responded to sanctions imposed by a coalition of Western countries with a retaliatory import embargo. I draw on this unique case study and a customs data set on firm‐level import transactions to investigate the ramifications of Russia's counter‐sanctions on firm‐level foreign trade. Using detailed data and a triple‐difference estimation strategy, I examine micro‐level dynamics and heterogeneities that aggregate data alone do not reveal. I identify the effects of the embargo on the extensive margin (the probability that a firm imports a particular product from a given country in a particular time period) and the intensive margin (the value of a firm's import transaction) of firm‐level trade, as well as its effects on logged unit values. The main findings of this study show that the embargo had statistically significant negative impacts on extensive and intensive margins of firm‐level trade. I also pinpoint evidence of multiple exemptions from the embargo and a large degree of heterogeneity of firm‐level responses to the embargo based on firm attributes, such as firm size and government connection.