Russian Invasion of Ukraine: Effect on Finnish Companies Trading in Goods with Russia

Abstract

The Russian invasion of Ukraine in February 2022 triggered the imposition of major economic sanctions on Russia and several firms cut their economic ties with the country. We estimate the economic effects of the war on Finnish companies that traded in goods with Russia before the war (treatment group) compared to other firms engaged in international trade in goods (control group). Our main findings can be summarized as follows:

1. The war has had only minor economic effects on the business of firms that used to export to Russia. Their total exports decreased compared to the control group imme-diately after the war began but their turnover has been almost unaffected. The Russian market was probably relatively unimportant for them, or they were able to replace their exports to Russia with other markets.

2. Firms that used to import from Russia have experienced more difficulties; both their to-tal imports and turnover decreased considerably compared to the control group when the war started, and the negative difference has gradually deepened. Additionally, several of these firms have completely ceased their import activity. The total imports and turnover of firms that used to import from Russia grew considerably compared to the control group in 2021, probably fueled by increases in their input and output prices. Therefore, part of the decline in total imports and turnover in 2022 could be ex-plained by the fading of the price hikes.

3. No effect was found on the number of employees or the sum of wages and salaries of firms that used to trade with Russia. This suggests that their real output has not been affected much by the war and they have not been forced to resort to layoffs to a wide extent. This observation holds for both exporters and importers in the treatment group.

4. Based on our findings, there is no need to subsidize firms that used to trade with Rus-sia because the economic effects of the war on them have been only moderate, on average. The war has mostly affected companies that were highly dependent on trade with Russia. These companies took large business risks which have now been realized.