Do Economic Sanctions Work? Evidence from the Russia-Ukraine Conflict

Abstract

This study examines the impact of sanctions on Russian firms and the strategies these firms adopt to counter the effects of targeted sanctions. We utilize institutional theory to explain how firms shape their strategic responses as they balance the institutional pressures from their home environment vis-à-vis sanctioning countries. We gather longitudinal data on Russian firms that faced foreign sanctions from the start of the invasion of Crimea in 2014 until 2020. Our empirical analyses indicate that sanctions do not have a persistent negative effect on the economic performance of Russian firms. We discuss the empirical findings with the help of a series of illustrative examples of specific actions that Russian firms undertook in response to the sanctions. We conclude that while targeted sanctions create symbolic meaning in foreign relations and create financial friction for targeted firms, firms use a variety of adaptation strategies that negate the economic impact of these sanctions.