Trade in times of conflict and sanctions : A gravity model analysis on the trade between the Scandinavian countries and Russia during the Russian-Ukrainian conflict

Abstract

In this thesis we study trade flows between the Scandinavian countries Denmark, Norway and Sweden and Russia. Particularly, we investigate the trade flows in light of the Russian- Ukrainian conflict and the following sanctions against Russia imposed by the EU. We look at data on exports, imports and total trade between the Scandinavian countries and Russia and how they have developed in the period from 2012 till third quarter of 2022. Insights in this development are interesting and important, both to evaluate the effectiveness of the sanctions already imposed, and what implications these findings may have for future policy work. To answer the research question, we have used both descriptive statistics and regression analysis. We have used an augmented gravity model when evaluating the development of trade flows. To estimate the relationship between trade flows and conflict and sanction, we have added dummy variables to the traditional gravity model that adhere to important events in the period. Our main findings are that the exports from the Scandinavian countries to Russia tend to decrease from the first sanctions are imposed in 2014, mainly explained by the Russian import embargo on food effective from August of 2014. Further, imports from Russia have not significantly changed until second quarter of 2022, when the EU put Russia under a strict and wide-ranging sanction regime as a respond to the Russian invasion of Ukraine in February 2022. Our main explanation for why it has not decreased earlier is that the goods the Scandinavian countries imported to Russia were not directly included in the sanction programs. We do not see any change in trade in periods where new sanctions are not imposed.