Sanctions, Relocation and Entrepreneurship Development

This study examines how comprehensive economic sanctions on Russia following the 2022 invasion of Ukraine affected business formation patterns in Kazakhstan. Using administrative firm registration data from Kazakhstan (2021-2022) and a difference-in-differences identification strategy, I analyze whether sanctions generated business migration to Kazakhstan and what this reveals about sanctions effectiveness in contexts of regional economic integration.

The analysis exploits variation between Kazakhstan regions directly bordering Russia (treatment group) and interior regions (control group), comparing changes in foreign firm registrations before and after March 2022 sanctions implementation. Kazakhstan's membership in the Eurasian Economic Union alongside Russia creates a customs union with free movement of goods, services, and capital, potentially enabling firms to relocate while maintaining operational ties to Russian markets.

Main findings show that border regions experienced a statistically significant increase of 24-34 additional foreign firm registrations per month after March 2022, representing 150-200% growth. This effect is driven almost entirely by foreign individuals (98.7%) rather than legal entities, and concentrated in regions adjacent to Russia. The patterns suggest strategic positioning to maintain Russian market access while operating outside the sanctions zone.

The results reveal a fundamental tension: regional economic integration arrangements designed to promote development simultaneously create channels for sanctions circumvention. When firms can relocate to integrated neighboring economies while preserving market access and business operations, the economic pressure sanctions seek to impose is substantially reduced. Traditional sanctions assessments focusing on bilateral trade flows may overestimate effectiveness by failing to account for business activity displaced to economically integrated neighbors.

This research contributes to understanding how sanctions reshape cross-border business formation and highlights critical limitations of comprehensive sanctions regimes when applied to countries maintaining deep economic integration with non-sanctioned neighbors.

DATA: Firm registration records from Kazakhstan Bureau of National Statistics (2021-2022), regional socioeconomic indicators from multiple government sources.

METHODS: Difference-in-differences estimation with regional and time fixed effects, robustness checks including parallel trends tests and placebo timing tests.

KEYWORDS: Economic sanctions, business relocation, sanctions effectiveness, Kazakhstan, Russia-Ukraine conflict, Eurasian Economic Union, regional integration