Regional Economic and Financial Interconnectedness and the Impact of Sanctions: The Case of the Commonwealth of Independent States

Abstract

The war in Ukraine and the direct and indirect political, economic and financial involvement of many countries worldwide in this conflict demonstrates the difficult process of developing the new world order. Over 10,000 sanctions have already been imposed on Russia by the United States, the European Union and their allies. Many countries are significantly affected by sanctions regardless of whether they are imposing them, being targeted by them, or have economic and trade partnerships with either—or both—of the sides. Commonwealth of Independent States (CIS) countries have been significantly affected by sanctions related to the Russian–Ukrainian war. Seasonally adjusted real quarterly time series, including gross domestic product and external trade, monthly nominal exchange rate time series, exogenous dummy variables for sanctions, and a combination of the vector autoregressive model and the Granger causality test were used in the estimations. We demonstrate how sanctions have affected the Russian economy and foreign exchange market and how their impact may spill over to the economies and foreign exchange markets of other CIS countries. Based on the research findings and contemporary political and economic conditions in the region and the world, we make suggestions helpful for improving the international economic and trade policies of the CIS countries.