Russian Counter-sanctions and Trade Deflection: Evidence from Finland

Abstract: Economic sanctions are a widely used, yet controversial international policy tool. This paper aims to examine the trade deflecting effects of Russian sent import sanctions on the Finnish exports. This effect is analyzed by estimating a gravity equation of trade by applying Pseudo-Poisson Maximum Likelihood and Ordinary Least Squares estimators. The data covers Finnish export in the sanctioned product groups and a control group to 41 destinations from January 2013 to December 2016. A trade deflecting effect is found but the analysis fails to estimate the magnitude accurately.