The Influence of Western Economic and Financial Sanctions on Russian Economy

Abstract: After the 20 14 Ukrainian crisis, the United States and the European Union imposed several rounds of economic and financial sanctions on Russia, which are still continuing today. Russia's economic situation has deteriorated sharply: economic recession, capital flight, sharp drop in foreign exchange reserves, deterioration of investment environment and soaring inflation. The purpose of this paper is to study the influence of western economic and financial sanctions on Russian economy, but it is difficult to find effective comparison because no counterfactual is found. Therefore, this paper uses the synthesis control method to construct counterfactual (or synthesize Russia) to predict the Russian economy that is not affected by western economic and financial sanctions. Therefore, the difference in per capita GDP trajectory between real Russia and synthetic Russia can be attributed to the influence of western economic and financial sanctions. It is found that a series of western sanctions since 20 14 have indeed put Russia on the road of low growth, and the cumulative impact is increasing.

Keywords: economic and financial sanctions; Russia; Integrated control method

"Economic and financial sanctions" means that the sanctions country cuts off economic and financial exchanges with the target country, affecting the political and economic stability of the target country, thus forcing the target country to accept the political conditions of the sanctions country. Compared with military sanctions, economic and financial sanctions have the characteristics of low cost and high efficiency, so economic and financial sanctions have gradually become a new way among big countries. After the Ukraine crisis broke out in March 20 14, western countries led by the United States imposed several rounds of economic and financial sanctions on Russia, which have continued to this day. Although the Russian government claims that Russia's economic situation is normal under long-term sanctions, the impact and role of sanctions cannot be underestimated (Li Jianmin, 20 19). The economic and financial sanctions in 20 14-20 17 caused losses of up to 280 billion US dollars to Russia, with a GDP loss growth rate of 2.4% (Juan C Zarate, 2065438). After 20 16, the total GDP of Russia is only China and Guangdong province. According to the statistics of United Nations merchandise trade, the export of EU countries to Russia decreased by 14% in 20 14 years, with Malta (-78%), Cyprus (-42%) and Belgium (-27%) having the highest decline. Also in 20 14, three major international rating agencies downgraded Russia's credit rating: Standard & Poor's BBB-, Fitch BAA2 and Moody's BAA2. In 20 15, both the Council of the European Union and then US President Barack Obama announced the extension and expansion of sanctions against Russia. Since then, the sanctions imposed by the United States and Europe on Russia have gradually increased, so it is particularly important to understand and study the effects of economic and financial sanctions.

I. Literature review

Many domestic scholars have studied the influence of western sanctions on Russian economy. Tao, (20 16) and Xu (20 17) briefly combed and summarized the process of economic and financial sanctions imposed by the United States and Europe on Russia, and thought that western sanctions had a great influence on Russia's economic development, and economic and financial sanctions gradually became the first choice for big countries' games. Among them, Tao He (20 16) also pointed out that China should be alert to western economic and financial sanctions and make relevant preparatory measures in advance. Ma Xue (20 18) also believes that sanctions will have an irreversible negative impact on the Russian economy, and future sanctions will face many constraints, including the enforceability and legitimacy of sanctions, moral dilemmas, and differences between the United States and Europe in sanctions against Russia. On the other hand, Xu (20 15) and Bai Lianlei (20 15) believe that although economic and financial sanctions have dealt a serious blow to the Russian economy, the current financial sanctions against Russia are not successful, and the effect of sanctions is still limited, and Russia's attitude on the Ukrainian issue has not fundamentally changed. This view is consistent with that of Qu (20 18a). At the same time, he also believes that Russia has taken effective economic countermeasures and is gradually dissolving the impact of western sanctions.

Whether the western sanctions against Russia are effective has always been controversial. Some scholars such as Constantine A. Hollodi Lin&; Alexei. com? Unajev(20 19) believes that sanctions will have a direct and indirect adverse impact on the Russian economy; Other scholars such as Qu (20 18b) believe that sanctions have not changed Russia's position on the Crimea issue, and the goal of sanctions is still far away, even stimulating Russia's economic development and Russian patriotism, and helping Putin's government gain stronger public support. However, it is undeniable that sanctions have indeed caused an irreversible and serious blow to the Russian economy. Under the superposition effect of sanctions and falling oil prices, Russia's economic recession is serious, foreign exchange reserves plummet, the ruble depreciates rapidly, domestic inflation is serious, the investment environment deteriorates, capital outflows on a large scale, and energy and other fields are greatly affected. Russia is gradually isolated from the western world.

Domestic research on the effect of western sanctions against Russia is rarely analyzed from an empirical point of view, and its conclusion lacks reliability and authenticity. Therefore, this paper evaluates whether the western sanctions against Russia are effective or whether some adverse effects of GDP growth losses can be attributed to sanctions from an empirical point of view through comprehensive analysis. Based on the international panel data of October, 200318, this paper adopts Abadie &; The synthetic control method put forward by Gardeazabal(2003) uses the combination of 35 countries or regions that were not sanctioned by the West during the observation period to form a "counterfactual" synthetic Russia, and analyzes the impact of western sanctions on the Russian economy by comparing the trajectory of real Russian sanctions with that of synthetic Russian per capita GDP. The results show that a series of western sanctions since 20 14 have indeed put Russia on the road of low growth, and the cumulative impact is increasing.

Second, the realistic background: Russia's economic performance before and after the sanctions imposed by the United States and Europe.

From 2065438 to March 2004, Crimea's public investment in Russia aroused strong dissatisfaction from western countries, and then Russia suffered huge external shocks: firstly, the United States and the European Union jointly launched economic and financial sanctions against Russia. The rhythm, intensity and scope of US and European sanctions against Russia are basically the same: First, there were several rounds of sanctions on 20 14. During this period, in order to make Russia make concessions in the Ukrainian conflict, the United States and Europe imposed relatively strong sanctions on Russia, and the intensity and scope of sanctions were further expanded, especially after the MH 17 incident in July. After 20 15 -20 16, although the United States and Europe continued to extend sanctions against Russia, on the whole, the frequency was not as dense as that of 20 14, and the intensity and scope of sanctions did not rise. At the end of 20 16, due to the "Russia's access to Russia" incident, the United States began to increase its sanctions against Russia 2065438+07; Although the European Union has also continuously extended the period of sanctions against Russia, during this period, the United States and Europe began to disagree on the issue of sanctions against Russia. The intensity and frequency of EU sanctions against Russia are far less than that of the United States, and the effect of sanctions is greatly reduced.

Second, international crude oil prices have fallen sharply. According to the data of British BP, the international crude oil price dropped from more than one hundred dollars per barrel in 20 14 to about forty dollars per barrel in 20 16. The sharp drop in international crude oil prices coincides with the western sanctions against Russia, and its real reason has to be thought-provoking. As a big oil producer, Russia's crude oil exports are priced and settled in US dollars, and the Russian financial market, which has failed to grasp the pricing power of oil, is often hit by oil price fluctuations. At the same time, in recent years, oil supply exceeds demand, but some OPEC countries such as Saudi Arabia still do not cut production, which makes people suspect that this may also be one of the means of US sanctions against Russia.

Idriss Jazairy, the UN Special Rapporteur, said at the press conference in 20 17: "It is roughly estimated that Russia's GDP growth has been reduced by 1% due to sanctions, and the losses caused in three years are about 50-55 billion US dollars." Another economist estimated that sanctions caused Russia to lose 80 billion rubles, 20 14-20 15 years, and sanctions slowed down the Russian economy 1.2%. In the Russian economic report of August 20 19, the International Monetary Fund pointed out that sanctions reduced Russian economic growth by 0.2% (about1500 million US dollars) every year, and oil prices reduced economic growth by 0.65% (about 48.75 billion US dollars) every year, from 20 14 years to 20/kloc-0. After 20 14, Russia's GDP growth rate has been lower than the world average growth level. After 20 15, Russia's total GDP (in US dollars) has never exceeded 2% in the world, which is not as good as after the international financial crisis in 2008. From 20 13 to 20 18, Russia's GDP (in US dollars) dropped from the eighth place in the world to 12. Total reserves (including gold) and total reserves (excluding gold) plummeted in 20 14, and total reserves (including gold) reached a low of $368.043 billion in 20 15, and total reserves (excluding gold) reached a low of $2.01754.4 billion. Before the 2008 international financial crisis and western sanctions, Russia's inflation rate remained in single digits. In 20 15, inflation rose sharply and broke through double digits, reaching a peak of 15.5344%. The collapse of oil prices in 20 14 years triggered the ruble crisis, and the ruble depreciated rapidly against the US dollar 13%. The Russian central bank quickly took measures to prevent the ruble from continuing to depreciate and control inflation, but the effect was not obvious. The ruble continued to fall against the US dollar, reaching a record low. The fluctuation of the ruble exchange rate and the high inflation rate directly affected the living standards of the Russian people. In short, after the outbreak of the Ukrainian crisis, Russia faced the double test of economic recession and macroeconomic instability (Cheng Wei, 20 17).

Third, research methods and empirical analysis

In this paper, the synthetic control method was used, with Russia sanctioned by the West as the treatment group and Russia not sanctioned by the West as the control group. To determine the control group, it is necessary to find the appropriate weights as explanatory variables through the synthetic control method, and then carry out weighted average on the countries that have not been sanctioned by the West (the weights of each country are positive, and the sum is 1), thus constructing a synthetic Russia. If the explanatory variables of synthetic Russia and real Russia are similar before the 20 14 western sanctions against Russia, then the effectiveness of western sanctions against Russia can be determined by comparing the differences of output variables of real Russia and synthetic Russia before and after the incident.

In this paper, 35 countries (regions) with similar development level to Russia are selected as the control group, including: South Korea, China, China, Hong Kong, Malaysia, Thailand, Indonesia, Philippines, Vietnam, Czech Republic, Estonia, Poland, Slovakia, Slovenia, Cyprus, Macedonia, Croatia, Lithuania, Latvia, Bulgaria, Hungary, Romania, Serbia, India, Malta and Saudi Arabia. The logarithmic value of per capita GDP (20 10 constant price dollars) is selected as the dependent variable to measure Russian economic growth; The selected forecast control variables include the proportion of general government final consumption expenditure to GDP (%), total capital formation to GDP (%), total domestic savings to GDP (%), trade volume to GDP (%), inflation rate measured by consumer price index (annual inflation rate) and total unemployment rate to total labor force (%). (Limited to space, the empirical process is omitted, see the original)

Four. conclusion

This paper discusses the influence of western economic and financial sanctions on Russian economy from the perspective of empirical research. Using the World Bank's economic development database, the counterfactual object-comprehensive Russia is constructed by comprehensive control method. Since 20 14, a series of economic and financial sanctions in the west have really put Russia on the road of low growth, and the cumulative impact is increasing. Specifically, after the outbreak of the Ukrainian crisis, the economic and financial sanctions imposed by the United States and its western allies followed, and Russia's per capita GDP growth also showed signs of stagnation or even retrogression, which was 9.344% lower than its "counterfactual" per capita GDP. This conclusion still has high credibility after changing the treatment cycle and "placebo trial" of the sanctioned object. After 20 16, although the cumulative impact of western economic and financial sanctions is still deepening, the speed has obviously slowed down, partly because of the positive impact of Russia's anti-sanctions measures. The research results of this paper show that the deterioration of Russia's economic situation in recent years is closely related to the economic and financial sanctions imposed on it by the United States and its western allies. Economic and financial sanctions will have a significant impact on a country's political and economic stability, and the cumulative impact will increase year by year; Even if effective anti-sanctions measures are taken, it will only slow down the deepening of the impact of sanctions on the economy in a short time, but it will not eliminate the negative impact of sanctions on the economy.

Verb (abbreviation of verb) enlightenment

First, be highly vigilant and concerned about the economic and financial sanctions initiated by western countries against the target countries. Judging from the sanctions against Russia, economic and financial sanctions show obvious unilateralism and hegemonism with asymmetric rights. Under the background of globalization, the economic and financial ties between countries have deepened, and economic and financial sanctions will have an irreversible and serious impact on the target countries. Even in the political and economic game between big countries, economic and financial sanctions have become a common means of economic diplomacy for sanctions-initiating countries, second only to small-scale wars and even an extremely important supplement to paramilitary means.

Second, we should fully realize the serious and lasting impact of economic and financial sanctions imposed by western countries on the target countries. Economic and financial sanctions are essentially an economic discrimination. According to American economist Gary S. Becker's analysis of discrimination, in the process of economic and financial sanctions, the relative loss of one party with strong comprehensive national strength is much smaller than that of the other party with weak comprehensive national strength. Judging from the effect of economic and financial sanctions imposed by the United States and Europe on Russia, although Russia has taken countermeasures, the sanctions have had a significant impact on its economic growth, people's living standards, international trade, international financing, international normal clearing channels and exchange rate level. With the extension of sanctions, it is likely to endanger social and political stability. This also shows that even economies with large scale and strong military strength must attach great importance to the strong external shocks brought by economic and financial sanctions and take adequate countermeasures.

Third, the target country should take anti-sanctions measures to deal with economic and financial sanctions. If economic and financial sanctions cannot be avoided, we must actively respond, make plans and targeted countermeasures in advance, seek the support of more economies in the international community, fully mobilize all available economic and political resources, minimize the possible negative impact of economic and financial sanctions, and get out of the sanctions quagmire as soon as possible.

(References omitted)

(This article was transferred from World Economic Research,No. 1 1 in 2020)

Authors: Tao, Business School of Nanjing Normal University.