Evaluation of the effects from various ways of import substitution “input–output” method: Evidence from the Russian Federation

Abstract

The article is devoted to the issue of assessing the economic effects of import substitution to determine the consequences of investment decisions at the state level in the context of geopolitical risks. Due to a number of economic restrictions on the part of Western countries, the problem of replacing those types of products for which trade turnover were suspended particularly acute. In the conditions of a dramatic shock reduction of supply in the markets of many industries, with the level of demand remaining, there is a need for emergent reorientation of domestic production. Public investments should take into account the multiplier effect caused by the impact of each industry's output on each other. The paper proposes methodology for constructing a theoretical model of global interaction of countries based on input–output tables that take into account the production needs of each industry in the production of other industries and the multiplicative effect. Two experiments, the impact on the economies of all the countries of termination of trade between Russia and the European Union in a number of industries with subsequent measures: the replacement of European products with goods and services through China as well as its import substitution at the expense of Russia's own product facilities. The consequences of two scenarios of changes in output, tax charges, imports and exports of Russia and the EU are estimated; long-term effects are predicted. The practical significance of this work consists in helping to make managerial decisions at the state level in financing certain sectors of the Russian economy.