?
Import Substitutions and the Western Sanctions in the Russian Economy: The Strike of 2014 and the Prospects After 2022
In this chapter, we consider the impact of the 2014 Western sanctions on structural changes and import substitution in the Russian economy. Import substitution policy has been strengthened in Russia since the mid 2000s, but the sanctions have significantly affected its nature and focus, contributed to divergent results in different industries. We start with the introduction of long-term trends affecting the development and technological upgrade of Russian industries and show that the Western sanctions of 2014 have not changed them much. However, the sanctions and the resulting change in Russia’s geopolitical relations have led to significant shifts in the Russian economy. In particular, we show that after 2014 we observe structural changes in intra-industry imports, import re-orientation from the West to the East, development of new export competitive advantages in import substitution sectors. We show that the results of import substitution in Russian industries are ambiguous and that positive evidence might be find out in agriculture and the food industry. We demonstrate the existence of different trajectories in the development of industries under sanctions in the "use of imports/technological dependence" space. This allows us to discuss the following factors moderating the impact of the Western sanctions: (1) distance to the technological frontier (2) the nature of industry organization (horizontal vs. vertical), (3) the presence of entrepreneurial initiative and (4) the character of industrial policy. Given that the 2022 sanctions have exacerbated the accumulated problems in the Russian economy, we conclude by discussing the challenges of Russian import substitution after 2022.