Russo–Ukrainian war: Limits of Western economic sanctions

Author:

Rosefielde Steven1ORCID,Bernstam Michael2

Affiliation:

1. Department of Economics, University of North Carolina, Gardner Hall, Campus Box 3305, Chapel Hill, NC 27599-3305, USA

2. Hoover Institution, Stanford University, USA

Abstract

AbstractThe potency of economic sanctions imposed on nations depends on demand and supply adjustment possibilities. Adverse GDP impacts will be maximal when import, export, production, distribution and finance are inflexible (universal non-substitution). This paper elaborates these conditions, and quantifies the maximum GDP loss that Western sanctions could have inflicted on Russia in 2022–2023. It reports the World Bank's predictions, contrasts them with results and draws inferences about the efficiency of Russia's workably competitive markets. The paper shows that Russia's economic system exhibits moderate universal substitutability and is less vulnerable to punitive discipline than Western policymakers suppose. The likelihood that the Kremlin will restore Ukraine's territorial integrity, ceteris paribus, is correspondingly low. The authors also observe that unintended adverse side effects from sanctions and counter-sanctions were excessive because policymakers chose to maximize GDP-damage to Russia instead of optimizing Western and third-party net benefits. Given moderate substitutability, Western policymakers can switch to smart net benefit maximizing sanctions that enhance Western and third-party welfare without significantly bolstering Russia's military industrial productivity and war-waging capabilities by retaining embargoes on weapons, technology and critical components, while selectively softening other restrictions. Smart sanctions might facilitate a negotiated settlement of the Russo–Ukrainian war.

Publisher

Akademiai Kiado Zrt.

Reference105 articles.

1. Oil Sanctions Have Failed After Budget Revenues Surge as Russia Completes the Switch from European to Asian Markets;Aris, B.,2023a

2. President Vladimir Putin’s Fiscal Fortress Has Proved to be Far More Effective at Shielding Russia from Sanctions than Hoped by the West;Aris, B.,2023b

3. The Boomerang Effect: Sanctions Hurt Europe More than Russia;Aris, B.,2023c

4. The US-Led Price Cap on Russian Oil Exports Has Failed and “Almost No Russian Oil Is Being Sold for Less than $60”;Aris, B.,2023d

5. The Sanctions Against Russia Are Starting to Work;Aron, L.,2023

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