Escaping Sanctions by Trade Diverting

Abstract: Sanctions are one of the main policy tools used in order change behaviour of countries involved in conflicts, without using armed forces. This paper examines the possibility for a targeted country to escape the potential negative effects from sanctions by increasing trade with third countries that has not imposed sanctions. The analysis is carried out on the specific case of the sanctions against Russia that was imposed by several countries and institutions as a reaction to the Russia-Ukraine conflict regarding Crimea. The paper analyse the effects of these sanctions by empirically estimate Russian exports between the years 2007-2015. The estimations are performed with different specifications of a gravity model, where bilateral exports between Russia and the importing country is the dependent variable and variations of country specific characteristics are used as explanatory variables. The results are threefold, as Russia’s (i) overall exports to the rest of the world decrease when targeted with sanctions, (ii) exports to sanctioning countries decreased more than the rest of the world and (iii) exports to countries similar to the sanctioning countries have not decreased.