Seminar by Mark Spektor - The Price of Resilience

Dr Mark Spektor will present his paper The Price of Resilience, which examines how the 2022 EU sanctions against Russia affected European manufacturing supply chains.

Abstract

Do broad-based sanctions cause physical supply chain breaks, or do they operate primarily as input-cost shocks? This paper studies the 2022 EU sanctions against Russia as a natural experiment to identify the adjustment margins of European manufacturing. I map legal sanctions into trade data and propagate the shock downstream using the AI-generated Production Network (AIPNET), yielding a product-specific exposure measure capturing indirect reliance on sanctioned inputs. Using a dynamic difference-in-differences design for five major industrial economies (Germany, Denmark, Spain, France, Italy), I find that supply chains bent but did not break. While there is no robust evidence of a collapse in physical import volumes, import prices (unit values) for exposed goods rose sharply. In the benchmark specification – weighted by pre-war import values to capture aggregate economic relevance – a 10 percentage point increase in exposure is associated with a 9.7% increase in relative landed costs (CIF). This “price of resilience” amounted to approximately 11.1 billion USD for the nine considered EU economies in 2022. I show that unlike the US trade war, where policy uncertainty caused extensive margin adjustments, the hard constraint of the 2022 embargo resulted in a pure price premium on stable quantities. The sanctions thus operated effectively as a targeted input-cost shock: they successfully cut direct ties with Russia, but the costs were borne by European industry through a broad-based resilience premium rather than a collapse in output.