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Sanctions and misallocation. How sanctioned firms won and Russia lost

Nigmatulina, Dzhamilya (2022) Sanctions and misallocation. How sanctioned firms won and Russia lost. CEP Discussion Papers (1886). Centre for Economic Performance, London School of Economics and Poiltical Science, London, UK.

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Abstract

Using a unique natural experiment of staggered firm-level sanctions against Russia in 2014-2020 and the data on over 900,000 Russian firms, I estimate the effect of sanctions on targeted firms and on the aggregate economy. Surprisingly, sanctioned firms on average gained 38% more capital inputs after sanctions relative to the industry trends. The effect is in part driven by sanctioned state-owned firms, getting 60% more capital relative to non-sanctioned firms. Using additional data on subsidies and government contracts, I find that this result is explained by the government protection of targeted firms, that more than compensated for a negative sanctions shock. However, the sanctioned firms were already too large and had too much capital prior to sanctions. I use a heterogeneous firm framework to show that the distortions between sanctioned and non-sanctioned firms, which existed before the sanctions, got exacerbated after the joint effect of sanctions and government protection. I combine the causal estimates with the quantitative frame-work and estimate that on the aggregate, the Russian TFP dropped at least by 0.33% reaching 3% in relevant sectors.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2022 The Author
Divisions: Management
Economics
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D6 - Welfare Economics > D60 - General
F - International Economics > F3 - International Finance > F37 - International Finance Forecasting and Simulation
F - International Economics > F5 - International Relations and International Political Economy > F51 - International Conflicts; Negotiations; Sanctions
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O10 - General
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
Date Deposited: 26 Jan 2023 16:12
Last Modified: 26 Jan 2023 16:18
URI: http://eprints.lse.ac.uk/id/eprint/118037

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