Impact of Transformation of Foreign Economic Supply Chains on the Sustainability of Regional Economic Development

Scientific literature pays considerable attention to the sustainable development of economic systems at the macro and meso levels. This research area gained particular relevance in the early 2010s, marked by intensified international competition, including sanctions [4].

Implementing state foreign economic policy in competitive conditions and adapting economic entities to a rapidly changing institutional and market environment have long been recognized challenges [5].

Modern scholars pay significant attention to the sustainable development of economic systems under the evolving external economic agenda. Theories and research methods addressing these issues at the macro level are reflected in the works by Sukharev [6], Chernova [7], Yaroshevich and Migunov [8], Elshin et al. [9], Grimme et al. [10], He and Huang [11], Irwin [12], Alessandria et al. [13], Leibovici and Waugh [14], Soderbery [15], Bershka and Lee [16], etc.

It is important to emphasize that the scholars cited here have addressed research problems related to the topic primarily through the lens of developing and substantiating adaptation programs for import substitution. For example, in the work of Safiullin et al. [5], it is noted that under conditions of heightened external shock pressure, a key priority in the implementation of national economic policy should be a protectionist import substitution strategy. According to the authors, the effectiveness of this policy significantly contributes to the processes of adaptation and the further strengthening of sustainable development potential in the national economy under systemic transformation.

Similar views are held by Grimme et al. [10], He and Huang [11], Irwin [12]. In their study, Grimme et al. [10] emphasize that one of the key strategic adaptation tools for developing countries under increasing pressure from externally generated restrictions is the alignment of national macroeconomic policy with a structuralist approach to import substitution programs. In other words, the sustainability of macroeconomic dynamics is largely shaped by protectionist state policies within the framework of foreign economic strategy. Excessive liberalization in foreign trade relations under conditions of systemic transformation leads to negative consequences for the national economies of developing countries.

Despite the existence of academic work on the development of sustainable development mechanisms for economic systems in the context of transforming external geopolitical agendas, it should be noted that the dominant focus of research remains at the macroeconomic level. It should be mentioned that the prospects for developing economic systems at the regional level are not sufficiently covered in scientific literature. Meanwhile, this particular research “focus” holds equally critical importance both for academic inquiry and for addressing practical challenges related to the search for and development of adaptive mechanisms for sustainable economic development. This research focus holds equally critical importance for scientific advancement and practical tasks. Despite the often-debated topic and active attempts to develop unified methodological approaches for assessing the impact of trade and financial restrictions on regional development, scholars tend to focus on specific scientific tasks. For example, regional characteristics of economic system adaptation to the transformation of foreign trade relations are explored by Uvarova et al. [17], Adewale [18], and Broocks and Biesebroeck [19].

The impact of sanctions limiting the export-import potential of regions is explored by Zolotukhina [20], Kazikhanov [21], Babina et al. [22], Fang et al. [23], Cardero and Galindo [24], Hoang and Breugelmans [25], Karuppiah and Sankaranarayanan [26], Koren et al. [27], Bali and Rapelanoro [28], etc. The main research emphasis in these works shifts toward the analysis and assessment of the impact of sanction pressure on the prospects of economic dynamics in developing countries. It is important to note that, as in the previous case, the methodological toolkit is generally limited to descriptive analysis of statistical data, without the use of modeling to examine the interrelationships between the studied phenomena.

Despite the availability of studies on sustainable regional economic development under the transformation of external cooperative ties, it is essential to acknowledge the need for further development of methodological tools in this area. This is due both to the insufficient development of methodological approaches for constructing economic-mathematical models at the meso-level in the context of the issues raised here, and to the need to adapt existing approaches to the new configuration of transformational processes triggered by trade and financial sanctions. In this regard, particular interest emerges at the level of regions that serve as the locomotives of national economic systems. In the case of Russia, this is undoubtedly the Republic of Tatarstan, which stands out as one of the country's key leaders in terms of industrial, investment, and innovation development. The degree of its resilience to external macroeconomic disruptions will, to a large extent, shape broader expectations regarding the prospects for sustainable economic development in Russia as a whole.

4.1 Russia’s external trade and sanctions impact

According to the packages of sanctions imposed against Russia, several international companies are in the process of reorganizing their Russian assets (Table 1). According to Funakoshi et al. [3], 149 companies and organizations left the Russian market from 2022 to 2023. The largest number of companies that left the market belongs to the consumer sector (44 entities, or 29.5% of the total number of foreign companies that left). 11.4% of companies are in the automotive industry, 19.5% in the sports industry, 9.4% in the energy sector, 8.7% in the financial sector, 2% in the aviation industry, 12.1% in the technology sector, 2.7% in the logistics sector, 4.7% in the economy, and 2% in personal wealth. Manufacturing and construction sectors account for 4.7 and 0.7%, respectively.

Table 1. Companies or organizations that left the Russian market by sectors

In 2022, the cost of all commodity groups imported to Russia decreased compared to 2021. For example, the commodity structure of imports of European goods to Russia for all commodity groups changed by 26%. The EU mainly limited the export of machinery and transport equipment, which are in greatest demand in Russia (Figure 2).

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As for the export of Russian goods to EU countries, an opposite trend is observed. By the end of 2022, the total volume of key product categories exported to the EU increased. This growth was primarily driven by a significant rise in the supply of mineral fuels and lubricants, which surged by 42.3% in the same year (Figure 3).

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In 2023, the trends typical of 2022, marked by the adaptation of Russia’s national economy to systemic transformations in foreign trade, underwent significant changes. These changes primarily affected the geographical orientation of trade flows in foreign economic activity. As a result, there was a noticeable pivot in Russia’s exports and imports toward Asia and the Global South, particularly India and China.

By the end of 2023, exports to Europe had dropped significantly, declining from 265.63 billion USD in 2022 to 84.93 billion USD in 2023, i.e., only 31.97% of the previous year’s level. Imports from the EU also decreased, reaching 78.47 billion USD, which is 87.66% of the 2022 volume. Similar trends were observed in trade with the US (Figure 4).

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On the contrary, trade with Asian countries strengthened. Exports increased from 290.43 billion USD in 2022 to 306.62 billion USD in 2023, while imports surged from 145.16 to 187.53 billion USD (+ 129.19% compared to the previous year). Exports to Africa also rose, from 14.80 to 21.15 billion USD, while imports saw a modest increase, from 3.09 to 3.35 billion USD.

By the end of 2023, the volume of gross Russian exports had significantly declined (Figure 5). Despite the shift in exports and imports from the West to the East (for instance, China’s share in Russia’s total imports now exceeds 40% and continues to grow, indicating weak supply diversification), there is no full substitution for lost imports. Imports have increased in monetary terms. However, it is premature to conclude that the range of imported goods by product category has been fully restored. This is particularly relevant for sectors of the Russian economy that had established supply chains before the severe sanctions imposed by Western countries. A rapid reorientation of import supply chains to the Global South and Asia remains unlikely. This is largely due to the increased pressure of secondary sanctions, imposed on supplier countries exporting certain goods to Russia.

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Figure 5. Russian foreign trade in goods, million USD (according to the balance of payments)

4.2 Tatarstan’s regional vulnerability and import dependency

Using our methodological toolkit, we analyzed the key product groups imported into Tatarstan. Given that several macro-indicators for exports and imports during 2022-2024 have not been published in statistical databases, the evaluation was based on the 2021 data. This timeframe provides valuable insights into external economic structural connections at the regional-sectoral level before the escalation of sanctions. It offers a clearer understanding of the vulnerability of regional economic activities to disruptions in foreign economic relations. This enables a more comprehensive assessment of potential risks within the emerging institutional environment.

According to the 2021 data, more than half of all imports to Tatarstan originated from a limited number of key suppliers. Following our methodology of filtering product categories based on a threshold (at least 0.5% of total imports), the distribution of key importing countries is presented in Figure 6. During the analyzed period (2021), Tatarstan demonstrated the highest dependency on imports from Germany (24% of total imports), China (15%), and the US (11%).

The final system of indicators for conducting cluster analysis is presented in Table 2. The three largest import partners (Germany, China, and the USA) are highlighted in bold, as they together account for over 50% of the region’s total import.

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Table 2. Volume of goods imported to Tatarstan by main commodity groups, USD

The selected data (Table 2) were used for cluster analysis using Ward’s method. The dendrogram is presented in Figure 7.

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Figure 7. Cluster analysis

The first cluster includes countries with an import share ranging from 1.13 to 2.85%, indicating a moderate level of dependence of the region’s economy on supplies from unfriendly countries. The second cluster comprises nations that have imposed sanctions on Russia, accounting for the largest shares of imports: 21.5% from Germany and 12.75% from the US. The third cluster groups friendly countries.

Based on the assessment of data from the Federal Customs Service of the Russian Federation, the most critical product categories imported into Tatarstan are outlined in Table 3.

–Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof (33.78%);

–Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles (12.11%);

–Plastics and plastic products (11.23%).

Table 3. Structure of import dependence of Tatarstan’s economy by main product groups imported into Tatarstan (according to data for 2021)

Table 4 summarizes the correlation coefficients among import-dependent sectoral activities along with GRP allowing identification of the industries exhibiting the strongest statistical relationship to regional economic growth.

Table 4. Assessing the correlation dependence of industry import flows and GRP of Tatarstan

Regression equations were constructed for the selected sectors of the regional economy. The results are presented in Table 5.

Table 5. Results of constructing regression equations

The significance parameters of the regression equation are given in Table 6.

Table 6. Parameters of significance of the regression equation

Residual diagnostics confirmed the adequacy of the regression models, and robustness checks supported the reliability of the estimated relationships. According to the estimates obtained, a slowdown in the growth rates of the considered types of economic activities (Table 5) by 1% creates the potential for a 0.76% reduction in Tatarstan’s GRP.

The proposed approach to the study and resolution of the problem has several methodological limitations. These arise from various aspects, including the fact that this approach is based solely on the data obtained for Russia, the specific toolkit and methodological framework employed, and the approach that excludes commodity nomenclature items with a share of less than 0.5% of the total imports supplied to the region. Another limitation concerns the time horizon of the dataset: due to the absence of complete and reliable statistics for 2022–2024, the analysis was restricted to the period 2010–2021. As a result, the conclusions primarily reflect the structural dependencies of the pre-escalation period, which may differ from the dynamics observed under the current sanctions regime.

Nevertheless, this approach significantly contributes to achieving the primary objective of the study, i.e., determining the prospects for the sustainable development of the regional economy under conditions of transforming import-dependent sectors through the localization of supplies of final and intermediate goods from abroad. The assessment results facilitate the identification of directions and mechanisms for implementing anti-crisis state policies in the sphere of regional development and support for industrial sectors.

The study confirmed that the main share of Tatarstan's imports comes from Germany, China and the United States. Regression analysis further depicted that should the most import-dependent sectors, chemicals, plastics, motor vehicles, electronics, and furniture, decelerate 1%, GRP could diminish 0.76%, correlation coefficients ranging from 0.72 to 0.84. For a complete depiction of sanctions' impacts using post-2022 data, alongside exploring alternate strategies via regional policy simulations regarding import substitution and diversification, further investigation must broaden this analysis. Also, in subsequent research, it is need to examine the mechanisms for implementing anti-crisis state policies used by countries subject to economic sanctions. The indicated methodological framework connects sectoral import reliance with regional growth evolutions. Accordingly, it may be extrapolated toward other regions exhibiting elevated external exposure, augmenting its practical merit regarding comparative studies with policymaking throughout diverse national contexts.