The economic impact of international uncertainties : Sanctioning effects, foreign direct Investment and firm behaviour in Russia

Abstract

This thesis contributes to following fields of studies: international economics, political economy, international business and industrial organization literature, as well as institutional and innovation economics. In the introductory chapter we provide the necessary foundation for placing the empirical evidence that is presented in Chapters 2 - 4 in a broader economic context. By doing this, the first chapter gives an overview of the main milestones in Russian economic history and outlines Russia's integration into the global economy. Hereby we concentrate on Foreign Direct Investment (FDI) and trade as they are the most relevant components of Russia's globalization process, a process that is currently being reversed as a result of geopolitical tensions. Chapters 2 - 4 form the empirical part of this dissertation. In Chapter 2, we quantify the economic cost for the sanction sender, the EU-27, in the aftermath of the geopolitical crisis, triggered by Russia's involvement in the Ukrainian conflict. We find that direct costs are mainly born by the countries closely connected with Russia in terms of trade, whereas indirect costs are mainly induced by the tight embeddedness in the European trade network. In the empirical part that follows, we turn to the question of whether political risks affect the behaviour of multinational companies (MNCs) in Russia. The research shows that political risks not only affect FDI exits in the host economy, but that their impact is intensified through sanctioning policies. In our final empirical analysis, we take a different perspective that is still highly relevant for an emerging economy stuck in the geopolitical crisis while simultaneously requiring reforms that would guarantee sustainable long-term growth. This growth becomes possible by boosting productivity and building institutions that foster investment in human and physical capital, as well as innovation, in both the high and low-tech manufacturing sectors. Thus, in the empirical study on the innovation-performance link, we scrutinize the factors that might contribute to an improved efficiency of the Russian manufacturing sector.