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Working paper

Perception of risks associated with economic sanctions: the case of Russian manufacturing

The paper is focused on assessing the factors of risks for Russian manufacturing firms due to sanctions imposed on Russia by the EU, US and other countries in 2014. While there is an extensive literature on assessing the successes and failures of international sanctions on the economies of both senders and targets on macroeconomic level (Hufbauer et al., 2007; Drezner  1998, 2003; Morgan et al, 2009; Krustev, 2010; Morgan et al, 2009 among others), we are interested more in trying to understand the corporate response, i.e. what firms evaluate the introduction and increasing the scale of economic sanctions as a threat to their corporate strategy and their possible reactions aimed to adjust to changing environment due to geopolitical shock. Our research, based on the recent survey of manufacturing companies provides evidence that Russian manufacturing firms have become in the last decade much more integrated into the global economy via FDI, foreign trade, including both the import of technological equipment and intermediates, via establishing international partnerships and extensive supplying foreign companies which operate in Russia than is ordinary supposed. Considering the self-selection effect of best performing firms for foreign trade we can state that sanctions could be the most harmful for better performing and globalized firms and, thus, the impact of the sanctions for the prospects of Russian manufacturing sector may be very strong in the medium and long-term perspectives.