The higher trade costs of doing business between Russia and non-Allies (component (4)) is motivated by reports that financing, insuring, and executing trade deals between Russia and non-sanctioning countries has become significantly more costly due to the existing Allied financial and trade sanctions. The FDI withdrawal is modelled as negative shocks to sector-specific total factor productivity (TFP) and applied to those sectors with Allied-owned capital.6 The partial withdrawal of FDI by Allied-owned subsidiaries (component (3)) reflects that a growing share of foreign companies invested in Russia has been withdrawing or suspending operations since the beginning of Russia’s war,4 which will only accelerate with future rounds of sanctions.5 We assume conservatively that half of Allied subsidiaries in Russia close or suspend operations. We define the Allied trade embargo as consisting of four cumulative components, each of which is implemented as a separate model shock:ġ) An embargo on imports from Russia, modelled as prohibitive import tariffs by Allies.Ģ) An embargo of Allied exports into Russia, modelled as prohibitive export tariffs by Allies.ģ) Partial withdrawal or suspension of FDI by companies headquartered in an Allied country andĤ) As a collateral consequence of the Allied trade embargo, higher trade costs at which Russia continues to trade with non-sanctioning countries. We simulate the effects of this counterfactual using CGE modelling, more specifically the Global Trade Analysis Project (GTAP) framework. In the face of spiralling sanctions and escalating rhetoric, we explore a heightened conflict scenario in which Allies3 extend their current sanctions into a comprehensive trade embargo on Russia. 2022, Ferrara et al 2022), while yet others focused on estimating economic effects on certain countries or sectors (e.g. OECD 2022), econometric and partial-equilibrium techniques (e.g. 2022, WTO 2022), others applied global macroeconomic models (e.g. Evenett and Muendler 2022, Chepeliev et al. Some contributions chose computable general equilibrium (CGE) modelling (e.g.
![the medium review embargo the medium review embargo](https://kohnhed.files.wordpress.com/2013/07/c3.jpg)
With remarkable promptitude, a number of researchers and institutions have set out to analyse the economic effects of Russia’s war and the subsequent sanctions on the global economy. In response, Russia has begun to impose its own countermeasures, or countersanctions, against nations it considers ‘unfriendly’. Sanctions on Russia have been as diverse as the group of Allies, ranking from financial measures against Russia’s central bank and/or commercial banks to import restrictions and bans, export controls, investment bans, travel restrictions, seizure of international assets, and suspension of international cooperation.2 Some of the most severe sanctions have been imposed by G7 countries and the EU. In response, a coalition of at least 40 Allies1 has formed to impose economic sanctions. Since 24 February 2022, Russia has waged a war of aggression against Ukraine. Editors' note: This column is part of the Vox debate on the economic consequences of war.