Discussion paper

DP16646 Investment under Stormy Skies: The Case of Russian Firms during 2004-2016

In this study, we quantify the effects of uncertainty on investment decisions for the Russian economy. We employ an empirical specification where the dynamics of investment under uncertainty are captured by an error correction model of investment. We use a rich panel of Russian
non-financial firms which is uniquely suited to studying investment in Russia over the period 2004-2016. We treat the sanctions regime instituted in 2014 against entities in Russia as a quasi-natural experiment. To control for the heterogeneous effects of the ruble devaluation and oil price decline that occurred concurrently with the sanctions regime, we exploit firm-level and sectoral variation in our micro level data set that covers both large firms and SMEs. We find significant negative effects of uncertainty on the response of investment to demand shocks due to the sanctions
regime after isolating the effects of foreign exchange exposure that works through balance sheet channel of the ruble devaluation, the effects of the oil-cost dependence in production as well as of the indirect effects of trade linkages with sanctioning countries on the investment rate


Altug, S and S Yesiltas (2021), ‘DP16646 Investment under Stormy Skies: The Case of Russian Firms during 2004-2016‘, CEPR Discussion Paper No. 16646. CEPR Press, Paris & London. https://cepr.org/publications/dp16646