Effects of Sanctions on EU – Russia Trade: A Gravity Model Approach

This thesis studies trade relations between the European Union and the Russian Federation. The main objective is to see how international sanctions have affected bilateral trade volume between the Russia and the EU. Data for Russia and 28 European Union countries is used. The augmented gravity model with a panel data methodology is used. The main results suggest that distance between the countries has no effect on trade, another insignificant variable is the Linder variable that was manually calculated by the authors. Variables like GDP of EU member states and the GDP of Russia were significant and have a positive effect on trade. Variables representing common border and the exchange rates were significant and have a positive effect on trade. On the other hand, variables representing common history and sanctions have a negative impact on trade. As expected research found that sanctions have a negative impact on trade and should be avoided if possible. Keywords: International trade, Sanctions, Gravity model of trade.