Shifting realities: The unintended consequences of sanctions against Russia on the Finnish economy

Abstract

The paper assesses the economic costs borne by sanctioning countries through a unique natural experiment — the unprecedented escalation of sanctions against Russia in 2022. Finland is chosen as the subject of analysis due to its historically close trade and economic ties with Russia, making it particularly vulnerable to the secondary effects of sanctions policy. Employing the synthetic control method, we compare Finland's real GDP trajectory from 2022 to 2024 with a counterfactual scenario constructed from 23 non-sanctioning economies. Our findings reveal average GDP losses of 8%, demonstrating the substantial economic price of severing Finland's historically strong trade ties with Russia.