Working Paper: CEPR ID: DP18064
Authors: Jean Imbs; Laurent Pauwels
Abstract: We propose a data-based approximation of the effects of trade sanctions. We validate the approximation by comparing it with exact responses simulated from a canonical multi-country multi-sector model. The approximation is palatable for a broad range of elasticities of substitution, except for extremely low ones. It is based on a decomposition of high order trade according to destination or inputs markets and can readily be computed on the basis of international input-output data. As such it provides a practical shortcut to evaluating the consequences of trade sanctions without having to make difficult calibration choices. We implement our approximation to evaluate the consequences of trade sanctions between Europe and Russia. Our approximated effects are within the range of existing estimates, but they mask vast asymmetries. First, the effects of sanctions are about fifteen times larger on Russia than on Europe. Second, the effects within Europe are enormously asymmetric, with much larger consequences on ex-“satellite” countries of the Soviet Union than on large Western European economies. We then adapt our approach to show that the most affected European countries do not typically have access to substitute markets and are in fact highly dependent on Russia. We show that this extreme dependence on Russia is at least partly explained by the existence of specific energy transporting infrastructure (pipelines) that appear to constrain tightly the production of electricity in those heavily affected East European economies. These findings illustrate the practical potentiality of our approximation in a variety of different contexts.
Keywords: European energy imports; Russian sanctions; Economic consequences of sanctions; Global value chains
JEL Codes: F14; F42; F51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sanctions (F51) | GDP in Russia (P24) |
| Sanctions (F51) | GDP in Europe (O52) |
| Sanctions (F51) | GDP in Eastern European countries (P24) |
| Dependence on exports to Europe (F10) | GDP in Russia (P24) |
| Lack of access to substitute markets (D43) | GDP in Eastern European countries (P24) |
| Specific energy transport infrastructure (L94) | Dependence on Russia (F52) |