What is the influence of the Russian embargo on Polish GDP

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University of Amsterdam

Faculty of Economics and Business

January 2017

Bachelor Thesis

What is the influence of the Russian Embargo on Polish GDP?

Author: Magdalena Wiśniewska

Student number: 10846719

Specialisation: BSc Economics

Supervisor: Egle Jakucionyte

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Statement of Originality

This document is written by Student Magdalena Wiśniewska who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Introduction

When Russia annexed Crimea region in Ukraine, the EU reacted in March 2014 with a range of political and economic sanctions towards Russia. In August 2014, Russia decided to answer the EU sanctions, introducing embargo on import of certain goods (Kraatz, 2014) from countries adhering to the EU sanctions (Gros & Mustilli, 2015). The list of products banned consisted mainly of agricultural goods and processed food. Initially designed to last a year (Putin, 2014), the sanctions were prolonged in August 2016 until the end of year 2017 (Putin, 2016), following the extension of European sanctions towards Russia until July 2017 (European Council, 2017).

Trade with Russia, especially the agro-‐food-‐processing industry, constitutes a significant share of Polish trade overall and had a positive impact on the growth of Polish GDP before introduction of the counter-‐sanctions (Kacperska, 2012). According to Vienkuviene and Masteikiene (2015), the embargo imposed on the EU countries has a tremendous impact on Central and Eastern European economies in terms of a sharp decrease in exports. As the embargo covers the part of Polish-‐Russian trade that constitutes its largest part, the European Parliament (2014) expected Poland to be among the countries most influenced by the sanctions, just next to the Baltic States, and its GDP to decrease. According to research run by Oja (2015), in the Baltic States, the overall impact of the sanctions on the GDP constitutes 0.1-‐ 0.5% of their GDP, once intra-‐ EU supply chains are taken into account. As now for more than two years embargo still remains in power, it is significant to verify what is the actual influence of Russian counter-‐sanctions on the GDP of the second most influenced country, Poland.

This paper will depict the structure and importance of trade with Russia for Poland, it will analyze the indirect openess of Poland to the effect of Russian counter-‐ sanctions through the intra-‐EU trade linkages and investigate the influence of the Russian embargo on Polish GDP. First, the general situation of Polish-‐Russian trade and facts about the embargo will be depicted. Expectations and predictions of European institutions for the sanctions’ impact will be analysed, along with the summary of the results of the resarch done recently on the topic. Secondly, the methodology will be explained. It will be followed with the presentation and analysis of the results. Next the alternative reasons for the trade decrease, EU measures introduced to counteract the negative impact of the Russian sanctions and changes in the trade pattern of the EU countries, and Poland specifically, will be presented. At the end the conclusion will be drawn from the research.

Polish-‐Russian trade analysis and the Embargo influence predictions

The EU’s reaction to annexation of Crimea by Russia and its military intervention in Eastern Ukraine consisted primarily of the imposition of economic sanctions. Those sanctions included asset freezes, travel restrictions, the suspension of development

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loans from the EBRD, limited access to primary and secondary capital markets in the EU, exports and imports bans on trade in arms, an exports ban on dual-‐use goods and reduced access to sensitive technologies and services linked to oil production and bans on trade in certain goods (Gros & Mustilli, 2015).

Counter-‐sanctions, including the embargo under analysis, concerned the EU members countries, Australia, USA, Canada and Norway (European Comission, 2014). The list of products banned from being imported to Russia included vegetables and fruits (except prepared vegetables and fruits), dairy products (milk, cheese, butter, milk powder, whey powder, fresh products, condensed milk, food preparations containing milk) and meat (bovine animals, swine, poultry, salted, in brine, dried, smoked, except baby food, fat, meat offal, live animals) (Russian Federation, 2014).

The European Commission has assessed that the damage to Europe’s economy as containable. However, a document leaked to the media that the Commission estimation the effect of sanctions and countersanctions on economy was a 0.3% decrease of the EU GDP in 2014 and 0.4% decrease in 2015 (Szczepański, 2015). In an Economic Forecast (European Commission, 2015c) they stated that tensions with Ukraine will lower the EU growth by a quarter of a percentage point in 2015. Vienna Institute for International Economic Studies (2014) has estimated the EU losses caused by conflict in Ukraine to be €11 billion in case of 10% decline in exports to Russia. In case of sanctions, which would have halved the EU exports, the loss was estimated to equal up to €55 billion. The Austrian Institute of Economic Research (2015) estimated the decrease in exports and tourism to equal €44 billion and to cause a loss of 0.9 million jobs in the short-‐term and 2.2 million in the long-‐term. They estimated the value added loss to equal €34 and €92 billion in short and long run respectively.

Summing up, according to Austrian research institutes, the estimated annual decrease in the EU GDP ranged between €11 and €92 billion, respectively 0.06% and 0.51% of the EU GDP. European Commission estimated the decrease to be in range of 0.25% and 0.4%.

Figure 1. Polish GDP in years 2005-‐2015. Source: Eurostat (European Commission, 2015a).

246201 274603 313874 366182 317083 361804 380239 389369 394721 410990 429794 0 100000 200000 300000 400000 500000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Million E uro

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Figure 2. Polish Exports to Russia as percentage of Polish GDP in years 2005-‐2015. Author’s calculations. Source: Eurostat (European Commission, 2015a).

Polish GDP experience constant growth since 2009 (Figure 1). This trend did not change during last two years, under suppression of the embargo. This does not mean, however, that the sanctions did not have an impact on the Polish economy.

According to Austrian Institute of Economic Research (2015), geographical closeness correlates with the relative size of the countersanctions’ effects on the national level, with the Baltic countries, Finland and the Eastern European countries being hit above the EU average. Vienkuviene and Masteikiene (2015) confirm the embargo’s impact for Central and Eastern European (CEE) economies, one of which is Poland. As in the CEE the most suffered production sectors are the dairy and meat sector, which are the most developed and GDP contributing sectors in those economies, the negative effect of the embargo is significant. Moreover, the effects of the Russian sanctions on those countries are enhanced by the policies of the older EU members, trying to protect their own markets from the competitive younger counterparts (Venkuviene & Masteikiene, 2015).

Trade between Russia and Poland has significantly increased during the years 2004– 2014: imports increased by 330% and exports by 300%. The trend was broken only by the 2009 crisis. Subsequently, there was a breach of the trend in imports in 2013, due to decrease in the demand for mineral products (gas, gasoline) and a breach of trend in exports in 2014, due to the Crimean conflict. The share of Polish-‐Russian trade in the Polish trade overall remained constant until 2014, with exports oscillating at 4% and imports falling constantly until 10% in 2014 (Nacewska-‐Twardowska, 2015). Exports from Poland to Russia in the years 2004-‐2013 grew much faster as share of the GDP than as share of Polish exports overall. In 2014 the share of exports to Russia in the Polish exports overall decrease by 1% and eqalled 4.2% (Batyk, 2015). In the same year the share of Polish exports to Russia in Polish GDP decreased by 0.35% and equalled to 1.7% (Figure 2). 0 0,5 1 1,5 2 2,5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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In their report, Gross and Mustilli (2015) show that even though some EU member states claimed that they have been highly influenced by the decrease of exports to Russia, the economic cost in terms of lost exports, and thus potentially jobs, has been negligible. However, Kacperska (2012) have proven that trade with Russia, especially the agro-‐food-‐processing industry, has constituted a significant share of Polish trade and had a positive impact on the growth of Polish GDP before the counter-‐sanctions, in the years 2004-‐2011. Additionally, Nacewska-‐Twardowska (2015) claims that as food products constitute 14% of Polish-‐Russian trade, the embargo influenced the trade exchange between those countries significantly. She stated that it laid heavily on Polish exporters, especially on the ones who export apples, tomatoes, pears, and quince, as exports to Russia constitute half of the exports of those products from Poland overall. In other cases, exports of goods to Russia did not surpass 18% of the good’s exports overall. Before the sanctions, exports of apples, tomatoes, pears, and quince were equal to 20% of all Polish exports to Russia in 2013 (Gros & Mustilli, 2015). According to Batyk (2015), the share of agri-‐food exports in overall Polish exports to Russia have significantly decreased after the mutual sanctions introduced.

Methodology, Data Collection and Analysis

The research method will be based on the paper about counter-‐sanctions influence on Baltic States’ GDP by Oja (2015).

Poland tends to have an open economy, similarly to the Batic states, and it trades with countries that also possess links with Russia. It could allow the sanctions to have an impact not only through the direct channels, but as well indirectly through the intra-‐EU trade linkages (Oja, 2015). According to Bank of Finland, knock-‐on effects transmitted from other European markets could further negatively impact an economy (Ministry of Finance, 2014). Therefore, first, the spillover effect, which is defined as the indirect openness of country to Russia through the EU trade linkages, will be computed for Poland with the use of the following formula. It will be based on the data before the sanctions, retrieved from Eurostat of the European Commission, and it will be calculated for 28 countries. 𝑧_!,!" = 𝑥!,! 𝑌_! × !" !!! 𝑥!,!" 𝑌_! !!.!

!!-‐ exports from country i to country k as a ratio to the GDP of country i /direct

exposure of country i to shocks from country k through the trade channel

!!,!"

!! – exports from country k to Russia as a ratio to the GDP of country k /direct

exposure of country k to shocks originating from the Russian economy through trade

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Second, change in the Polish GDP due to the Russian embargo will be calculated, with the use of formula:

∆𝑌!!"!#$ = ∆𝑥!,!,!"𝑣!,!,! !" !!! ! !!!

∆𝑌_!!"!#$_{-‐
change
in
the
value
added
of
country
c
due
to
the
sanctions}

∆ 𝑥_!,!,!" -‐ change in exports of country i to Russia of goods from industry p affected by

the sanctions

𝑣_!,!,!_{-‐
share
of
value
added
created
in
country
c
to
export
one
unit
of
products
of}

industry p from country i

Share of value-‐added is computed as follows:

𝑣_!,!,! =𝑤!,!,!

𝑥_!,!

𝑤_!,!,! -‐ overall value added created in country c to export products of industry p from

country i

𝑥_!,!_{–
overall
exports
of
goods
from
industry
p
of
country
i}

It will be calculated for two sectors p affected by sanctions, agriculture and food processing. The calculations will include 27 EU countries, due to lack of information about trading volumes of Malta in the ‘EU trade since 1988 by HS2,4,6 and CN8’ dataset. Again, it will be based on the data retrieved from Eurostat of European Commission. Finally, the total effect will be at the end additionally decomposed into the direct and indirect ones. The direct effect can be retrieved from the following formula:

∆𝑌!!"#$%& = ∆𝑥!,!,!"𝑣!,!,!

!

!!!

∆𝑌_!!"#$%&_{-‐
change
in
the
value
added
of
country
c
due
to
the
sanctions’
influence
on
direct}

trade

∆ 𝑥_!,!,!" -‐ change in exports of country c to Russia of goods from industry p affected by

the sanctions

𝑣_!,!,!_{-‐
share
of
value
added
created
in
country
c
to
export
one
unit
of
products
of}

industry p from country c.

The indirect effect can be retrieved from the following formula:

∆𝑌!!"#!$%&' = ∆𝑌!!"!#$− ∆𝑌!!"#$%&

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It is important to differentiatie between the spillover effect and the indirect effect on the conceptual level. In order to facilitate that it has to be noticed that the spillover effect is a measure of the overall openess of the country and it takes into consideration all industries and overall volumes of exports. Comparatively, the indirect impact of sanctions was calculated using the shares of value added created in the country considered and specific for the given industry.

The influence calculated will be presented as the percentage ratio of change in value added to the Polish GDP. The GDP of year 2013 will be used, as it was the last full year before the sanctions were imposed. Data on exports used in the calculations and specification of products banned due to embargo are categorised according to the CN nomenclature, therefore by individual products. Data available concerning the trade in value added (TiVA) is divided by industries, including food processing and agriculture. In order to use the TiVA data, the data on exports and products banned by embargo was segregated according to activity (Table 1).

Agriculture Vegetables, edible roots and tubers (excluding seed potatoes, seed onion, sugar maize hybrid for planting, peas for planting)

0701 (excluding 0701100000), 070200000, 0703 (excluding 0703 10 110 0), 0704,

Fruit and nuts 0705, 0706, 070700, 0708,

0709, 0710, 0711, 0712 (excluding 0712901100), 0713 (excluding 0713101000), 0714, 0801, 0802, 0803, 0804, 0805, 0806, 0807, 0808, 0809, 0810, 0811, 0813

Food-‐Processing Meat of bovine animals, fresh or

chilled 0201

Meat of bovine animals, frozen 0202 Pork, fresh, chilled or frozen 0203 Meat and edible offal of the poultry,

fresh, chilled or frozen 0207 Meat salted, in brine, dried or

smoked 0210

Live fish (excluding hatchlings of salmon (Salmo salar) and trout (Salmo trutta)

0301 Fish and crustaceans, molluscs and

other aquatic invertebrates

0302, 0303, 0304, 0305, 0306, 0307, 0308

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Milk and dairy products (excluding lactose-‐free milk and lactose-‐free milk products)

0401, 0402, 0403, 0404, 0405, 0406 Sausages and similar products of

meat, meat offal or blood; final food products based thereon

160100 Food or finished products (excluding

biologically active supplements; vitamin-‐mineral complexes; flavour additives; protein concentrates (of animal and plant origin) and their mixtures; food fivers; food additives (including complex ones)

1901901100,1901909100, 2106909200,2106909804, 2106909805, 2106909809

Table 1. Segregation of products by activity. Source: Annex to the Resolution of the Government of the Russian

Federation No. 778

(European Comission, 2014).

Spillover Effect 0.498 %

Table 2. The spillover effect for Poland. Calculated with use of data for year 2013. Author’s calculations. Source: Eurostat (European Commission, 2015a).

Table 3. Data shown as percentage of 2013 Polish GDP, change in trade is calculated with the reference to year 2013. Author’s calculations. Source: Eurostat (European Commission, 2015a).

The indirect openness of Poland to the shocks originating from the introduction of the Russian embargo, the spillover effect, that results from the EU trade linkages equals to 0.5 % (Table 2). According to Oja (2015), the indicator values for Baltic States were the highest in Europe and equalled from 1% to 2% of their GDP. The numbers mentioned for both the Baltic States and Poland are low. This can be explained by the fact, that countries exporting goods to Russia are usually not the same countries that import

Total Embargo Effect Direct Embargo Effect Indirect Embargo Effect Indirect Effect/ Total Effect Total of goods

affected -‐0.188% -‐0.177% -‐0.012% 6.148% ∆ in trade 2014 -‐0.085% -‐0.081% -‐0.004% 5.214% ∆ in trade 2015 -‐0.179% -‐0.169% -‐0.010% 5.396% Cumulative Effect 2014-‐2015 0.264% 0.250% 0.014% 5.339%

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goods from Poland (European Commission, 2015b). Aditionally, the trade tariffs in the EU countries are uniform, minimising the re-‐exports.

The total negative impact of the Russian sanctions on Polish GDP equalled 0.09% in 2014, when the sanctions covered the months since September until October, and 0.18% in 2015, when the sanctions were in power for the duration of the whole year (Table 3). Comparatively, an annual impact of sanctions according to Oja (2015) was the highest among the EU countries in Lithuania and equaled to a decrease of 0.4–0.5% of the GDP. In Estonia the negative effect was in the range of 0.2–0.3% and in Latvia around 0.1%, which positions Poland among three most influenced EU countries. The overall negative impact of the countersanctions on Polish GDP in the years 2014-‐2015 equalled to 0.26% of the annual Polish GDP (Table 3).

As the Russian sanctions under consideration constitute a complete ban on exports of certain goods from the EU countries to Russian, the decrease in trade of those goods should bring the exports to zero. The impact in that case would be slightly higher and reach a decrease of 0.19% of the GDP in the year 2015. However, some contracts are still in force and are thus exempted from the sanctions (Austrian Institute of Economic Research, 2015). Therefore the exports values are equal to small, positive numbers and the countersanctions impact on Polish GDP is 0.01% smaller.

The direct effect of the sanctions constitute the major share of the total effect, with the indirect effect equal to merely 5-‐6% of the total. It means that the Polish economy was influenced primarily through the direct trade channel with Russia, and only negligibly by the intra-‐EU trade linkages. The results Oja (2015) obtained for the Baltic states were equally small.

Alternative reasons for the trade decrease, EU mitigating measures and changes in the trade pattern

1. EU mitigating measures introduced

In order to mitigate the impact of the Russian counteranction on the industries influenced, the EU introduced a range of emergency measures, including measures relating to the internal dimension, e.g. the use of market stabilization tools under the common agricultural policy, and measures dealing with the external dimension, pro-‐ active and forward looking, involving efforts to access alternative export markets, e.g. promotion of products either on the EU internal market or in third countries (McEldowney, 2016).

Starting August 2014, taking into consideration the impact of embargo on the fruit and vegetable sector, the European Commission introduced measures for the peach and nectarine sectors in order to deal with the over-‐supply and low prices of those products. They consisted of provision for market withdrawals, especially for free

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distribution, and compensation for non-‐harvesting and green harvesting. Suspended due to disproportionate surge in claims, they were reintroduced at the end of September 2014 with improved targeting, namely an annex to the decree outlining eligible volumes in individual Member States, with specific figures per product (McEldowney, 2016). The scheme was prolonged until June 2016 with provision for the withdrawal of produce, for free distribution to charitable organizations and for other purposes, such as animal feed and composting, as well as for non-‐harvesting and green harvesting measures. It concerned the 12 Member States, which accounted for the largest fruit and vegetable exports to Russia on average during the previous three years and included as well an annex including specific volumes for those countries (McEldowney, 2016).

In order to promote the EU agricultural products, in September 2014 the European Commission designed €30 million to enhance promotion programs in EU and third-‐country markets. The desired goal was to help the producers find new markets for their products inside or outside the EU. In total, the Commission approved of 101 of those programs before 2016. In 2016 a wider scope of beneficiaries and eligible products became available, along with the introduction of an annual work program, calls for proposals and increased EU co-‐financing rates. The budget for the year 2016 equaled €111 million (McEldowney, 2016).

The extent of the mitigating effect of the measures introduced by the EU is currently unkown. Therefore, it might be the case that due to those measures the values of the Russian embargo impact calculated in this paper happen to be overestimated.

2. Alternative reasons for trade decrease

The impact that the Russian countersanctions had on the Polish economy is calculated on the basis of the Polish exports to Russia from the last year before the sanctions, namely the year 2013. However, some researchers claim that the trade between Poland and Russia would have been affected by other factors than the countersanctions themselves and it would have been lower in the years 2014-‐2015 independently of those sanctions. For interpreting the impact of the countersanctions with respect to the year 2013 as the base year, it is therefore relevant to analyze the possible alternative reasons for the Polish-‐Russian trade pattern changes and decline.

The EU exports to Russia have fallen by 50% for some industries and they have fallen to zero for others, however alternative reasons besides the trade sanctions exist for those changes in the trade pattern (Gros & Mustilli, 2015).

First of all, Gros and Mustilli (2015) claim that overall Russian imports have halved due to the 50% decrease in oil price, which has pushed the Russian economy into a deep recession. As total shares of trade with countries that imposed sanctions on Russia have not changed significantly, sanctions cannot have played a major role in undermining trade flows between the EU and Russia. The EU’s share in Russian imports

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has been fairly stable until the end of 2014, and then it declined somewhat, down to 37% in May 2015. The share of the US, the most radical in sanctioning Russia, has actually increased after the sanctions, reaching 10% in May 2015, while Japan is quite stable at around 4% for the whole period under analysis. Major exporting nations that did not participate in the sanctions, such as China or South Korea, have also lost market shares. There is thus no evidence that the sanctions led to a broad-‐based shift in trade patterns (Gros & Mustilli, 2015).

The EU Institute for Security Studies confirms that the stagnation in the Russian economy predicted before the Ukraine crisis would have anyway caused a contraction in the bilateral trade (Giumelli, 2015). This is further supported by Havlik (2014) and Austrian Institute of Economic Research (2015), who both claim that Russia was stuck in transition and stagnation before the beginning of the Crimean Crisis. Moreover, the Finnish Ministry of Finance (2014) has stated that the Russian economic growth has been impaired by the slow regeneration of the country’s economic system, low level of investment and the weakening of the Ruble due to the Federal Reserve’s announcement about possible future tightening of monetary policy.

Secondly, according to Nacewska-‐Twardowska (2015), the decrease in trade with Russia was not only due to the Russian counter-‐sanctions, but partly as well due to the sanctions imposed on Russia by the EU. It caused the Russian economy to slow down, the Ruble to further deeply deteriorate and Russian imports to decrease.

Last but not least, the Austrian Institute of Economic Research (2015) predicted that the Russian countersanctions would cause a limited economic damage to the EU. They attribute the sizeable macroeconomic effects of the trade loss to the general worsening of trade relations between the EU and Russia -‐ in addition to the sanctions and counter-‐sanctions, there were as well diplomatic disruptions and boycotts by Russian trading partners. Havlik (2014) admitted that the repercussions of the conflict hampered the investments in Russia and, therefore, the GDP growth. The Finnish Ministry of Finance (2014) further confirmed that the growing geopolitical uncertainty has increased Russian interest rates, weakened the Ruble, accelerated inflation, decreased investment and reduced the overall imports’ demand. It has caused as well withdrawal of capital by the main financial investors, both Russian and international, and local households. In the support of this thesis, Batyk (2015) claims that Polish trade with Russia is strongly influenced by the political situation. Therefore, Polish exports were strongly influenced by the oil prices, weakening Russian GDP growth and Ruble depreciation. Those factors, along with the shift of Russian households facing economic uncertainty towards saving, caused the Polish goods’ demand to decrease.

Due to all the factors outlined above, it might be the case that the numbers calculated in this paper as the impact of the Russian embargo on the Polish GDP are actually a joint result of all the factors mentioned above and due to that the sanctions’ impact is overstated.

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3. Changes in the trade patterns

According to Nacewska-‐Twardowska (2015), the situation after the introduction of the embargo has proven that Polish exporters should invest into diversification of their exports targets, as it would allow to counteract the market fluctuations, both cyclical and caused by political tensions. Forthcoming increasing interdependence between the politics and economy will bring new challenges to Polish exporters and importers, therefore actions towards diversification should be undertaken as soon as possible. In 2013, total value of food exports to Russia from the EU Member States equaled €12.2 billion. The embargo covers €5.3 billion of goods, therefore, for this amount, a substitute market will have to be found, either among the EU internal markets or among outside markets other than Russia (Ministry of Finance, 2014). According to the Economics Department of the Ministry of Finance in Finland (2014), the redirection of exports primarily designed for Russia may open up new export opportunities. Venkuviene and Masteikiene (2015) support that point of view, claiming that the sanctions could cause some positive changes. According to them, thanks to the reorientation of export markets out of necessity caused by the embargo could motivate the EU countries to find new, trustworthy partners for export. Moreover, they claim it could cause an increase in effectiveness management of economic activity.

Meredyk (2016) believes that counteracting perturbations in the market caused by the bilateral sanctions requires improvement of the food trade organization. According to him, in order to increase stability of the food sector in Poland, competitiveness of the products should be increased, meaning improved quality of and a decrease in production costs. It would lower the sensitivity the economy to market perturbations, an example of which is the current trade embargo, and allow to maintain the growth of export. However, he points as well at diversification of the exports recipients and transfer of the released production to the more economically efficient markets.

Now it is visible that the EU agri-‐food sector has indeed managed to compensate the losses in exports caused by the embargo and recession in Russian economy by increasing exports to other destinations and finding alternative markets. According to the data gathered by the European Commission (2015d), until July 2015 the total EU agri-‐food exports to third countries increased by 5.7% in respect to the previous year. The exports to the US increased by 16%, to China by 33% and to Switzerland by 5%. The data for exports to the Asian markets show a positive change as well, with exports to Hong Kong increasing by 19% and to the Republic of Korea by 29%. Also the exports to the Arab countries do not break the trend, with an increase by 10% of exports to Saudi Arabia, by 14% to the United Arab Emirates and by 26% to Egypt.

Considering Polish trade geographically, there was an increase of exports to France (by €300 million), Germany (by €245 million), Italy (by €156 million), United Kingdom (by €147 million), Algeria (by €134million), Czech Republic (by €122 million)

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and Saudi Arabia (by €112 million) (Miszczyk, Rutkowski, Staśkiewicz, & Walczak, 2015). On the other hand, the greatest decline in the volumes of exports received from Poland happen in Russia ( by €380 million) and Ukraine (by €100 million). Due to those changes, Russia has dropped significantly on the list of our most important recipients of products from the agri-‐food sector (Miszczyk et al., 2015).

According to Miszczyk et al. (2015), as far as products covered by embargo are considered, Poland managed to compensate some of its unimplemented exports to Russia on the EU, African and Asian markets, which were beforehand neglected. It was possible to partially transfer export of selected, fresh or chilled, vegetables to Germany, Belarus and Italy, to transfer exports of frozen meat of bovine animals to France, Germany, Hong Kong, Italy and Bulgaria, ones of condensed milk and cream to Algeria, China, Italy, Cuba, Nigeria and Mexico and ones of meat and edible poultry offal to Germany, United Kingdom, Czech Republic, France, the Netherlands, Benin and Belgium. However, this does not change the fact that for some groups of products influenced by the embargo, mainly fruits and vegetables, the exports could not be efficiently reallocated in the short-‐time span, therefore Polish producers and exporters suffered severe losses. A representative product of that group are apples, the export of which decreased by approximately 22% on general scale, despite acceleration of their sales to Belarus, Kazakhstan and Romania (Miszczyk et al., 2015).

Conclusion

The purpose of this research was to quantify the influence of the Russian embargo, imposed on the EU countries after the Crimean conflict, on Polish GDP.

The indicator of indirect openness of Poland through the intra-‐EU exports linkages to the shocks originating from the introduction of the Russian countersanction, the spillover effect, equals to 0.5 % of Polish GDP. The negative impact of the Russian sanctions on Polish GDP equaled 0.08% in 2014, when the sanctions covered the months since September until October, and 0.18% in 2015, when the sanctions were in power for the duration of the whole year. The overall negative impact of the countersanctions on Polish GDP in the years 2014-‐2015 equaled to 0.26% of the annual Polish GDP. The direct effect of the sanctions constitutes the major share of the total effect, with the indirect effect equal to merely 5-‐6% of the total. It means that the Polish economy was influenced primarily through the direct trade channel with Russia, and only negligibly by the intra-‐EU trade linkages. The numbers are comparable to the estimations made by various institutions before the sanctions came into force and position Poland among the three most influenced EU countries.

Taking into consideration the sectors influenced by the Russian countersanction, it is almost impossible to disentangle the effect of Russian embargo and alternative reasons for trade decrease such as a recession in Russian economy, sanctions imposed

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on Russia by the EU and the overall political tension resulting from the Crimean conflict. It may be therefore the case, as multiple papers suggest, that the numbers mentioned as the impact of the Russian embargo on the Polish GDP are a result of all those factors. Moreover, the EU has introduced a range of measures mitigating the effect of the countersanction, the impact of which on the GDP is currently unknown. Those can be subjected to further research. Specialists consistently suggest that the best response to the Russian embargo would be for the industries to diversify their target markets, which some of them have by now successfully obtained. The EU countries, including Poland, have partially transferred their unimplemented exports to Russia to the EU, African and Asian markets.

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