Authors : Pavel Talamanov

Volume/Issue : Volume 9 - 2024, Issue 7 - July

Google Scholar : https://tinyurl.com/2588bvv9

Scribd : https://tinyurl.com/yr4juk8c

DOI : https://doi.org/10.38124/ijisrt/IJISRT24JUL1500

Abstract : This study examines how global and country- specific geopolitical instability affects Russian trade using data from 1996 to 2021. A panel regression model analyzes trade between Russia and its 15 top trading partners, exploring both direct and indirect effects. The analysis focuses on how accumulated foreign direct investment (FDI) and exchange rate fluctuations mediate these relationships. The findings reveal that global geopolitical instability decrease Russian trade by 0.0558. Interestingly, this negative impact is partially mediated by a decrease in FDI (-0.0805). This aligns with the Structural Equation Modeling (SEM) results, which show a significant negative effect of global geopolitical instability on FDI (-1.209). This suggests that FDI acts as a key transmitter of the negative effects of global instability on Russian trade. The role of exchange rate fluctuations, however, is more complex. While the Sobel Test indicated a negative indirect effect, the SEM analysis shows a positive indirect effect through exchange rate fluctuations on trade. This suggests potentially countervailing effects of currency fluctuations, with depreciation potentially incentivizing exports while appreciation might make imports cheaper. The impact of country-specific geopolitical instability varies depending on the context. Industries like food products and textiles are significantly affected by geopolitical instability increase, while sectors such as fuels, metals and raw materials show resilience. Close trading partners are less affected by global instability but suffer from partner- specific instability. Geographically, Western Europe benefits from global instability but faces challenges from partner-specific instability, contrasting with Eastern Europe and Asia. Overall, this research contributes to the understanding of how geopolitical instability, mediated by FDI and exchange rates, shapes Russia's trade performance.

Keywords : Geopolitical Instability, Mediating Effects, Russian Trade.

References :

1. Аrapova, E. Y., & Isachenko, T. M. (2019). Russian trade policy: main trends and impact on bilateral trade flows. International Journal of Economic Policy in Emerging Economies, 26-48.
2. Aksenov, I. (2023). Trade and economic relations of the Russian Federation in modern conditions. International Scientific Siberian Transport Forum, 1-23.
3. Anderton, C., & Carter, J. (2019). Principles of Conflict Economics. the Political Economy of War, Terrorism, Genocide, and Peace.
4. Balcilar, M., Bonato, M., Demirer, R., & Gupta, R. (2018). Geopolitical risks and stock market dynamics of the BRICS. Economic Systems, 295-306.
5. Baldwin, R. E., & Wyplosz, C. (2014). Trade wars are all relative: Past trade conflicts in historical perspective. American Economic Review, 1006-1035.
6. Bessonova, E., Kozlov, K., & Yudaeva, K. (2003). Trade Liberalization, Foreign Direct Investment, and Productivity of Russian Firms. Working Paper, 1-40.
7. Caldara, D., & Iacoviello, M. (2018). Measuring geopolitical risk. Board of Governors of the Federal Reserve Board International Finance Discussion Paper.
8. Engel, C. (2014). Exchange rates and interest parity. Amsterdam: Elseiver.
9. Glick, R., & Taylor, A. M. (2010). Collateral damage: Trade disruption and the economic impact of war. The Review of Economics and Statistics, 102-127.
10. Gupta, R., Gozgor, G., & Demir, H. E. (2018). Effects of geopolitical risks on trade flows: evidence from the gravity model. Retrieved from Springer: https://www.semanticscholar.org/paper/Effects-of-geopolitical-risks-on-trade-flows%3A-from-Gupta-Gozgor/395d35253849a9a3ead5903143b797b36c304580
11. Gurshev, O. (2019). What determines foreign direct investment in Russia? Central European Economic Journal, 312-322.
12. Ichiro, I., & Keiko, S. (2015). The impact of FDI and socio-cultural similarity on international trade: Poisson pseudo-maximum likelihood estimation of a Russian trade model. Economics Bulletin, 1020-1033.
13. IMF. (2023). The Impact of Geopolitical Conflicts on Trade, Growth, and Innovation.
14. Jensen, J., Rutherford, T., & Tarr, D. (2007). The Impact of Liberalizing Barriers to Foreign Direct Investment in Services: The Case of Russian Accession to the World Trade Organization. Review of Development Economics, 482-506.
15. Kalotay, K. (2015). The Impact of the New Ruble Crisis on Russian FDI . Baltic Rim Economies, 31-32.
16. Kalotay, K., & Sulstarova, A. (2010). Modelling Russian outward FDI. Journal of International Management, 131-142.
17. Kapusuzoglu, A., & Ceylan, N. B. (2017). The Impact of Russian Economy on the Trade, Foreign Direct Investment and Economic Growth of Turkey: Pre- and Post-Global Financial Crisis. Global Financial Crisis and Its Ramifications on Capital Markets. Contributions to Economics, 4-20.
18. Kort, D., Joop, Dragneva, & Rilka. (2016). Russia's role in fostering the CIS trade regime. Munich Personal RePEc Archive, 1-10.
19. Mariev, O. (2016). DETERMINANTS OF FDI INFLOWS: THE CASE OF RUSSIAN REGIONS. Ekonomika regiona (Economy of Region], 1244-1252.
20. MDPI. (2023). Does Geopolitics Have an Impact on Energy Trade? Empirical Research on Emerging Countries.
21. Morrow, J. D., Siverson, R. M., & Taberes, T. E. (1998). The political determinants of international trade: The major powers, 1907–1990. The American Political Science Review, 649-661.
22. Mueller, P., Tahbaz-Salehi, A., & Vedolin, A. (2017). Exchange rates and monetary policy uncertainty. The Journal of Finance, 1213–1252.
23. Nitsch, V., & Schumacher, D. (2004). Terrorism and international trade: An empirical investigation. European Journal of Political Economy, 423–433.
24. Pollins, B. M. (1989). Conflict, cooperation, and commerce: The effect of international political interactions on bilateral trade flows. The American Journal of Political Science, 737-761.
25. Rasoulinezhad, E. (2017). A new evidence from the effects of Russia’s WTO accession on its foreign trade. Eurasian Economic Review, 73-92.
26. Reshetnikova, C. (2021). MAIN FEATURES OF RUSSIA'S TRADE PERFORMANCE TRADE. Economics and business, 13-21.
27. Sukharev, O. S. (2020). Structural Analysis of Income and Risk Dynamics in Models of Economic Growth. Quantitative Finance Econ, 1-18.
28. WTO. (2022). The Trade-Disruptive Effects of Geopolitical Risk: Evidence from Firm-Level Data. Journal of International Money and Finance.
29. WTO. (2023). Geopolitical Uncertainty and International Trade: Evidence from the World Trade Organization Dispute Settlement System. Journal of International Economics.
30. Yang, Z. (2023). The US-China relationship and Global Value Chains. Retrieved from World Bank.