CEBA talks 2020-2024
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Sanctions and Misallocation. How Sanctioned Firms Won and Russia Lost

Authors: Dzhamilya Nigmatulina (HEC Lausanne).

Abstract: Using a unique natural experiment of staggered firm-level sanctions against Russia in 2014-2020 and the data on over 600,000 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 framework and estimate that on the aggregate, the Russian TFP dropped at least by 0.33% reaching 3% in relevant sectors.

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