Financial Sanctions: Impact on Capital flows and GDP Growth in Russia

The article includes review of evolution of the Western nations' sanctions regime, the mechanisms of its impact on the Russian economy and the quantitative estimates of the effect on GDP. The sanctions' impact channel linked to their negative influence on gross and net capital inflow to Russia is studied. It emerges that this influence softened in 2016-2017 thanks to lower uncertainty and the economy's adaptation to sanctions, but increased again in 2018 on the background of the constant flow of new sanction threats from the USA. The negative impact of sanctions on the Russian GDP in 2014-2017 was substantially milder than that of lower oil prices and tended to decrease as the time passed. However, in 2018, this impact similarly increased as compared to 2016-2017. The abatement of the USA sanctions' pressure in early 2019 may lead to a smaller sanctions' growth effect; however, the risks of further widening of restrictive measures (which, in particular, could target energy projects of the Russian companies, as well as Russia's weapons exports), as the USA 2020 elections are approaching, remain substantial.