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The Impact of International Economic Sanctions on Trade: An Empirical Analysis
Peace Economics, Peace Science and Public Policy
Abstract
International economic sanctions appear to be a common and recurring feature of political interactions between states. In particular, the United States is the country which has most frequently applied negative economic sanctions after World War II. In a parallel way, several measures, imposed by a multilateral organisation like the United Nations have taken place in recent years. This paper provides, through a gravity model approach, an estimation of the impact of economic negative sanctions on international trade.
First, the study reports panel gravity estimates of bilateral trade between the U.S. and 49 target countries over the period 1960-2000, inclusive. The results show that extensive and comprehensive sanctions have a large negative impact on bilateral trade, while this is not the case for limited and moderate sanctions. A second estimation focuses on the impact of unilateral U.S. sanctions on bilateral trade volume between target countries and the other G-7 countries over the same period. The results show that unilateral extensive sanctions have a large negative impact, while limited and moderate ones induce a slight positive effect on other G-7 countries bilateral trade. Thus, in the first case the hypothesis of negative 'network effects' is confirmed, while in the latter the sanctions-busting argument should be defended. In both estimations, however, multilateral sanctions demonstrate a large negative impact on trade flows.
... For years, scholarship in the economic coercion literature has noted the general ineffectiveness of sender-state sanctions in modifying the foreign policy positions of targeted states. A broad swath of studies has found sanctions related to foreign aid ( Hufbauer et al. 2007 ;Peksen and Son 2015 ), trade (imports and exports) ( Hufbauer et al. 1997 ;Caruso 2003 ;Early 2009Early , 2015, and foreign direct investment (FDI) ( Lektzian and Biglaiser 2013 ;Colin and Kleinberg 2015 ) have not inflicted the high costs sanctioning states seek to impose on targeted countries, as third-party states supply economic resources, playing the role of sanctions busters ( Early 2009( Early , 2015. However, the literature has not considered another critical capital source, namely sovereign bonds, which could affect sanctioned states' interest rates and financial costs. ...
... The lack of empirical work is surprising since sanctions scholars address how sender states seek to impose economic costs on targeted states in order to increase the political costs of maintaining a policy that the sender finds undesirable ( Hufbauer et al. 2007 ). In different economic areas, researchers have considered how sanctions impact foreign aid ( Hufbauer et al. 2007 ;Peksen and Son 2015 ), trade ( Hufbauer et al. 1997 ;Caruso 2003 ;Early 2009Early , 2015, and FDI ( Colin and Kleinberg 2015 ). Studies also have identified the influence of sanctions on currency collapses ( Peksen and Son 2015 ), foreign portfolio investment ( Shin, Choi, and Luo 2016 ), external debt ( Durmaz and Akkus 2019 ), and stock market prices in targeted states ( Ankudinov , Ibragimov , and Lebedev 2017 ;Hoffmann and Neuenkirch 2017 ), but not the effects of sanctions on bond ratings. ...
... Over the past several decades, states have used economic sanctions as the preferred instrument to coerce targeted countries to change foreign policies. Much scholarship also has documented the ineffectiveness of sender states' sanctions (e.g., Caruso 2003 ;Hufbauer et al. 2007 ;Colin and Kleinberg 2015 ;Peksen and Son 2015 ), as third-party states serve as sanction busters, providing new sources of capital ( Early 2009( Early , 2015. However, the economic coercion literature had not assessed the influence of sanctions on sovereign bond ratings, of key import, as bond ratings impact interest rates on bonds and capital costs ( Binici and Hutchison 2018 ). ...
Although much scholarship has noted economic sanctions’ ineffectiveness in reducing foreign aid, trade, and foreign direct investment, no empirical research has explored sanctions’ impact on targeted states’ bond ratings. Sovereign bond ratings are important as they affect future interest rates on bonds. Using data from up to 47 developing countries from 1996 to 2016, we find that sanctions raise capital costs, which in turn lowers bond ratings of targeted countries. Furthermore, we employ mediation analysis and learn that sanctions promote higher debt loads, as targeted states find it harder to obtain lower-cost loans and instead borrow at higher interest rate terms, contributing to reduced ratings. Given developing countries’ capital needs and credit rating agencies’ role in rating bonds, our research signals that countries should seek to avoid sanctions in order to acquire lower-cost finance. The findings also indicate that sanction senders hold indirect leverage over targeted countries’ bonds, suggesting a possible path to sanctions effectiveness for sender states.
... Thus, the trade balance improvement observed in 2022 can be attributed to an upsurge in total export values and a reduction in total import values. This outcome aligns with the conclusions drawn in Caruso (2003), suggesting that import sanctions may have had a more significant impact than export sanctions. This may indicate that policymakers Source: Compiled by authors using the data from the Trade MAP. should consider the potential effectiveness of import sanctions when formulating international trade and diplomatic strategies, especially during periods of economic and geopolitical challenges. ...
... The model explains how sanctions impose costs on both the sender and target, often being unsuccessful. Contrary to Caruso (2003) highlighting the greater effectiveness of import sanctions compared to export sanctions, Joshi et al. (2023) also showed that import sanctions and import plus export sanctions tend to be more effective than export sanctions alone. The extension of this model explores the retaliation by the target, the incentive for third countries to participate in multilateral sanctions or engage in sanction busting, and the consequences of different centralities of sender and target in a trade network. ...
... The effectiveness of sanction can be seriously undermined by sanction busting. Third country states and private companies may not align with senders and engage in sanction busting (Barry & Kleinberg, 2015;Caruso, 2003;Early, 2009;Joshi et al. 2023). Companies from the sanctioning countries often play a crucial part in evading sanctions. ...
The trade balance of Russia with its top 20 trade partners has increased over the last few years till 2022 with few exceptions such as the United States and the United Kingdom. Even the Russian trade deficit with Germany till 2021 has turned to trade surplus in 2022. However, as a result of the strict sanctions imposed on certain trade products by European Union (EU) nations and the US, the total import values of Russia declined from 199 billion in 2022. To explain if third countries, including Eurasian Economic Union (EAEU) nations, aid Russia by means of sanctions-busting, we offer several empirical tests. In this paper, we use annual cross-sectional data for 22,648 products exported to Russia along with tariff rates imposed on them in 2022. We first notice that even though the number of sanctioned exports is three times lower than that of non-sanctioned exports, the total import value from sanctioned exports is predicted to be larger than that from non-sanctioned exports on average by 0.36 percentage point. Second, the Russian import values from both EU and Rest of the World (ROW) exports are significantly greater than those from EAEU nations. Last but not least, EAEU nations, which are Russia's partners within the union, and EU nations, are more susceptible to activities such as sanction-busting compared to other third countries.
... First, most of literature studying trade effect of sanctions (Caruso 2003;Hufbauer and Oegg 2003;Hufbauer et al. 2007;Yang et al. 2004;Kohl 2021) confine their analyses to the USA as the only sender of sanctions. Although the USA still remains the most frequent sender, data shows that, increasingly other countries besides the USA, both developed and developing are resorting to economic sanctions as a diplomatic tool. ...
... Previous research on the impact of US sanctions on its bilateral trade with target (Caruso 2003;Hufbauer et al. 2007;Yang et al. 2004;Kohl 2021) found that while extensive and comprehensive sanctions had a large dampening effect on bilateral trade, no such effect was attributed to limited and moderate sanctions. However, given their exclusive focus on the USA, the results may not have a broad appeal, although importance remains in inspiring further work with larger dataset. ...
... Also, there is no consensus. Few studies show trade diversion in the presence of sanctions (Caruso 2003;Early 2009;Haidar 2017), while other find mixed or no evidence on diversion (Yang et al. 2009;Jonas 2017;Kohl 2021). Notably, some studies concur that sanctions are associated with lower thirdparty trade (Slavov 2007;Lamotte 2012;Peterson 2021). ...
Success of economic sanctions hinges on their impact on sanctioned countries’ trade. This, in turn, depends on the sanctioned country’s opportunity to divert trade to a third party (a country not involved in sanctions). History is witness to third parties facilitating trade diversion, thus busting sanction. Nonetheless, literature does not present conclusive evidence on trade diversion or on motivation for busting sanctions. Therefore, in this paper, we address the following: What bearing do sanctions have on bilateral trade flows and trade diversion? Is diversion dependent on the political and trade alliance third-party shares with the sanctioned and/or the sanctioning countries? We estimate a structural gravity model for globally representative country-dyads, during 1990–2019, using inter-alia the Global Sanctions Database. We find that sanctions depress bilateral trade between sanctioned and sanctioning nations and cause trade diversion via third party. The existence of trade alliance between third party and country involved in sanction has an additional impact on trade diversion. Furthermore, a political alliance between third party and sanctioned country heightens trade between them. However, political alliance between third party and sanctioning country does not explain trade between them. Our findings offer insights into India’s trade relations with Russia, since 2022, when Russia was subject to US-led sanctions.
... While trade restrictiveness indices are usually constructed for trade policy measures imposed by the importing nations to protect their domestic industries (Hoekman and Nicita, 2008), sanctions are trade restrictions imposed by other nations to deprive the target country of the benefits of international trade. The term 'general sanctions' is sometimes also referred to in the literature as comprehensive sanctions (Afesorgbor, 2019), extensive sanctions (Caruso, 2003), or large sanctions (Garoupa and Gata, 2002). General and comprehensive sanctions usually lead to the repression of internal protests that result from an economic downturn, rising unemployment, and poverty, all of which lead to a less democratic regime, thereby weakening the human rights conditions, political rights, and civil liberties in the target country (Wood, 2008;Peksen, 2009;Peksen andDrury, 2009, 2010;Adam and Tsarsitalidou, 2019;Gutmann, Neuenkirch, and Neumeier, 2020). ...
... Thus, this paper analyses the impact of sanctions imposed by the EU against Iran on quarterly trade flows between Iran and the EU28 and EA19 at the aggregate and sector level between Q1 1999 and Q4 2018. While many studies in the literature analyse the impact of sanctions on bilateral trade using the gravity model (Montenegro and Soto, 1996;Hufbauer et al., 1997;Caruso, 2003;Yang et al., 2004;Slavov, 2007;Morgan, Bapat, and Krustev, 2009;Felbermayr et al., 2019) as the benchmark specification, this paper applies a nonlinear autoregressive distributed lag (NARDL) model to estimate the impact of sanctions on bilateral trade flows, taking the asymmetric impact of real exchange rates on bilateral trade flows into consideration. However, in the robustness specification the gravity model of bilateral trade between the member states of the EU and Iran is estimated. ...
... Moreover, he advocates the use of smart sanctions designed to exert pressure directly on the ruling clerics while avoiding negative impacts on the Iranian population as side effects of general sanctions. Caruso (2003) uses a gravity model to analyse the impact of general US sanctions on the bilateral trade flows between 49 target countries and the US. He finds a significant negative impact of US sanctions on bilateral trade. ...
The European Union (EU) has been using economic sanctions both as a foreign policy tool and as a liberal alternative to military action. Since 2006, it has been implementing general sanctions against the whole economy of Iran, affecting their trade relations, and since 2007, following the imposition of sanctions by the UN Security Council, it has also been using smart sanctions targeting Iranian entities and natural persons associated with the country's military activities. In a nonlinear autoregressive distributed lag (NARDL) model, this paper investigates the impact of general and targeted EU sanctions against Iran on quarterly bilateral trade values between the 19 members of the euro area (EA19) and Iran between the first quarter of 1999 and the fourth quarter of 2018. In a robustness NARDL specification, trade between Iran and the 28 members of the EU is analysed. In addition, a gravity model of bilateral trade between Iran and the EU member states is run in a robustness check. The results indicate that the EU's general sanctions have strongly hampered trade flows between the two trading partners in almost all sectors, except for the primary sectors. Furthermore, our study finds that the impact of smart sanctions targeting Iranian entities and natural persons is much smaller than the impact of general sanctions on total trade values and the trade values of many sectors. Smart sanctions affect the exports of most sectors from the EA19 and the EU28 to Iran, while they are statistically insignificant for the imports of many sectors from Iran. Thus, this paper provides evidence of the motivations behind smart sanctions, which target specific individuals and entities rather than the whole economy, unlike general sanctions, which have a negative impact on ordinary people.
... In comparison, most studies focused on the influence on trade relations of international sanctions. Using the Gravity Model method, Caruso (2003) [25] addressed the influence on international trade of economic sanctions. Figures agree on the hypothesis of significant adverse consequences of international economic sanctions on trade flows. ...
... In comparison, most studies focused on the influence on trade relations of international sanctions. Using the Gravity Model method, Caruso (2003) [25] addressed the influence on international trade of economic sanctions. Figures agree on the hypothesis of significant adverse consequences of international economic sanctions on trade flows. ...
This study assesses the impact of economic sanctions on oil exports and economic growth through case studies of Libya. By setting up a synthetic group method that reproduces the oil exports and economic growth of the case study before the imposition of economic sanctions, we compare the oil exports and the economic growth of the Synthetic and the actual for each period. We address a crucial gap in the literature of sanction in a petrostate case study using the synthetic control approach. Our analysis found that both petroleum exports and economic growth were lower with economic sanctions. This research is integrated into the comparative and international landscape of international influence relations with the domestic economy. Economic sanctions, the results show, are the key driver in fluctuations in oil exports and economic growth that might be represented in the oil curse. We believe that our empirical research can contribute to domestic and international policy formation by sanctioned countries. Overall, the findings confirm that sanctions may be imposed on Libya as another channel of the resource curse from the global and foreign policy perspectives.
... As the USA is the most frequent user of ESs as measures of foreign policy, scholars have concentrated on the impact of US sanctions on trade value. Caruso (2003) documented the large adverse effects of unilateral US sanctions against sanctioned countries on bilateral trade value from 1960 to 2000. Hufbauer et al. (2009) indicated the severe damage of sanctions on US trade in 1995 and 1999. ...
... More importantly, firms in other countries do not want real or perceived relationships with sanctioned countries (Arnold, 2016;Torbat, 2005). This behaviour is more likely to happen among the ally of the sanction countries and thereby corresponds to the adverse 'network effects' mentioned by Caruso (2003). This phenomenon is prevalent in the case of financial sanction, for example, the one imposed by the USA after the 9/11 terrorist attacks. ...
The supply chain disruption drives the firms to source the same inputs from multiple suppliers in low‐cost countries. However, the imposition of economic sanctions may prevent firms from enjoying diversification benefits of global sourcing complexity. Using data for more than 127 countries from 1997 to 2014, we uncover the effects of economic sanctions on the global sourcing complexity. After extensive robustness checks, our main findings reveal that economic sanction hampers global sourcing complexity. These effects are conditional on the level of economic development and the occurrence of financial crises in a particular country. Our results are robust for various forms of economic sanction, alternative estimators, and when controlling endogeneity problems. Our findings suggest important foreign policy and managerial implications for the countries and firms in response to economic sanctions.
... In the experimental section, we will focus on the relationships between states or countries. The terms "sender" and "target" refer respectively to "the country imposing sanctions and the country receiving economic sanction" (Raul, 2003). We can look at economic sanctions in relation to: the type of sanctions, the target and the actors involved (Raul, 2003). ...
... The terms "sender" and "target" refer respectively to "the country imposing sanctions and the country receiving economic sanction" (Raul, 2003). We can look at economic sanctions in relation to: the type of sanctions, the target and the actors involved (Raul, 2003). ...
... Unlike these factors, much research centred on the impact of international sanctions on trade relations. Using the Gravity Model method, Caruso (2003) addressed the effect of economic sanctions on international trade. Figures accept the theory of significant negative impacts on trade flows through the implementation of multilateral economic sanctions. ...
This study estimates the impact of economic sanctions on oil exports and economic growth in the case study of Iran. By creating a synthetic control group method that reproduces the oil exports and economic growth before economic sanctions are imposed in the case of Iran, we compare the oil exports as well as the economic growth of the Synthetic and the actual for each period. Using the synthetic control method, we fill a major gap in the sanctioned literature in the petrostate economies case study. Our study finds that both oil exports and the economic growth of Iran would have been lower had it not been exposed to economic sanctions. This research is embedded in the comparative and international landscape linked to the relations of international influences with the domestic economy. The findings explain that economic sanctions are a leading factor in the variations in oil exports and economic growth, which can be reflected in the oil curse. We claim that our empirical investigation can contribute to policy formulation in the domestic and foreign arena by sanctioned countries. Overall, the findings confirm that the imposition of sanctions on a petrostate economy like (Iran) can be operated as another channel of the resource curse from international and foreign policy perspectives.
... Empirical research highlights various adverse economic consequences of international sanctions. Caruso (2003) demonstrates that extensive sanctions significantly reduce trade, unlike moderate sanctions, primarily through market disruption, rent-seeking, and individual responses. Biglaiser and Lektzian (2011) find that sanctions reduce FDI flows, especially before high-cost sanctions, due to increased investor risk. ...
Purpose
This study examines the impact of sanction intensity on labor force participation rate in 30 sanctioned countries from 1990 to 2019.
Design/methodology/approach
We apply different dynamic threshold panel models using the generalized method of moments (GMM) estimation.
Findings
Our findings reveal a non-linear relationship between sanction intensity and labor force participation rate. Milder sanctions are associated with higher labor force participation rate, while intense sanctions lead to reduced participation, largely due to the damaging effects of sanctions on domestic economies.
Originality/value
While several studies have examined the impact of sanctions on various economic, social and political factors, only a few have specifically investigated the role of sanctions on labor force participation across countries and over time.
... Although most studies find that sanctions harm the growth rate of the sanctioned country's GDP, foreign investment flows and international finances, the effects vary depending on the size and dependence of the countries involved, the unilateral or multilateral nature of the sanctions and the involvement of the United States or the United Nations, among other factors. Some recent examples from this literature are Caruso (2003); Neuenkirch and Neumeier (2015); Besedeš, Goldbach, and Nitsch (2017); Gurvich and Prilepskiy (2015); Hatipoglu and Peksen (2018); and Bayramov, Rustamli, and Abbas (2020). ...
This article offers new evidence to aid the discussion on the economic consequences of easing or tightening sanctions, with Cuba serving as a case study. Even with the persistent sanction regime, a level of trade, remittances and visitors has been sustained between the United States and Cuba, notably since the 1990s, fluctuating with the political climate. This study consolidates data from various sources to gauge the magnitude of this exchange relative to Cuba's GDP and calculates the susceptibility of economic indicators to shifts in sanctions (either easing or tightening) over the past three decades. Econometric findings demonstrate the impact of sanctions on Cuban economic growth. The findings suggest that tight sanctions negatively impact household consumption and Cuba's private sector. However, the data do not show a decline in the value of Cuban government consumption.
... Sanction costs vary between santioner countries, even across different sectors imposed by the same sanctioner country (Botterill & McNaughton, 2008). It is a plausible conjesture that the higher deadweight welfare loss for the sanctioned country, the higher the probability of change its compliance behavior (Black & Cooper, 1987;Caruso, 2003;Giumelli, 2011). ...
This Electronic Monograph (E-Monograph) is interested to present the effects of the Russian-Ukrainian conflict and its impact on the world economy. This E-Monograph is divided into five chapters. The first chapter is explaining each chapter of this E-Monograph. The second chapter in this research aims to explore various scenarios of World War III under different levels of destruction, involving multiple opponents and global geographical locations simultaneously. We utilize the World War III Impact Simulator (WW3-Simulator) to assess the potential outcomes of WWIII, considering various degrees of war escalation and intensity, ranging from partial conflicts to full-scale warfare. In our study, we examine twelve potential areas of armed conflict in the context of WWIII, each involving different opponents across the world. These areas and their respective opponents are as follows: 1. Europe vs. Russia (C1); 2. China vs. Taiwan (C2); 3. South Korea vs. North Korea (C3); 4. Pakistan vs. India (C4); 5. Japan vs. China (C5); 6. Japan vs. North Korea (C6); 7. Greece vs. Turkey (C7); 8. Israel vs. the Middle East (C8); 9. U.S. vs. China (C9); 10. U.S. vs. Russia (C10); 11. U.S. vs. Russia Allies in Latin America (Cuba, Nicaragua, and Venezuela) (C11); 12. U.S. vs. Iran (C12). We consider varying degrees of military devastation to assess the economic damages resulting from these conflicts. This research employs maps and multidimensional graphs to provide a comprehensive evaluation of the economic consequences of WWIII. Ultimately, our study presents intriguing findings generated by the WW3-Simulator within a unified multidimensional graphical framework and across different timeframes. Finally, it's worth noting that we are utilizing Wolfram Mathematica for our calculations and forecasts. The third chapter shows the economic dimensions of a territorial military conflict. The Intraregional Trade Disruption from War Simulator (ITDW-Simulator) attempts to estimate the heterogeneous macroeconomic effects of the military conflict. The model suggests two primary indicators and four secondary indicators. The final trade suffocation index (TS-Index) and the final investment desgrowth from war function (〖-δ〗_w ) measure trade disruption’s potential impact on international trade patterns and economic development. The agriculture exports, industrial and manufacturing exports, service exports, and FDI flows capture the trade and investment interdependency. The model investigates the impact of the Russo-Ukraine military conflict on the bilateral trade and investment between the Russian Federation and the European Union. The fourth chapter evaluates the impact of any armed conflict on economic performance is substantial, but measuring this impact to gauge the intensity of its effects on inflation and unemployment is fraught with uncertainty. This paper aims to address this gap by introducing the War Economic Destruction Level Simulator (WEDL-Simulator), a new economic method designed to evaluate the impact of armed conflict on both inflation and unemployment simultaneously. Using five key indicators, the WEDL-Simulator draws from various analytical perspectives to assess the economic damage caused by the Russo-Ukrainian conflict. In this article, the global economy is used to demonstrate the applicability of the WEDL-Simulator, providing a coherent evaluation of the negative economic effects of the Russian invasion of Ukraine on world inflation and unemployment.
Finally, the fifth chapter introduces a new economic simulator in the case of a war, this new economic simulator is entitled “The Post-War Economic Impact Simulator (PEI-Simulator).” The PEI-Simulator assesses the economic impacts of countries thorough the possible scenario of a partial or full war in three different stages: (i) pre-war stage; (ii) war stage; (iii) post-war stage. The analysis makes use of different indicators such as economic desgrowth from war (-δwar), war intensity (I), war losses (-Lwar), economic wear from war (Πwar), level of war tension (Twar), level of diplomatic negotiations (D), and the total economic leaking from war (Ωwar). Lastly, this research applies the PEI-Simulator to evaluate a possible full war between Russia and Ukraine.
... However, conceiving costs as symmetric is What Can IR Power Politics Learn from Physics? 9 inaccurate, as this is not necessarily the case (Bergstrand, Egger, and Larch 2013). When taking asymmetric costs into account, gravity models can explain aspects such as the effects of free trade agreements on trade and national welfare (Baier and Bergstrand 2009;Baier, Yotov, and Zylkin 2019;Caporale et al. 2009;Carrère 2006), the impact of sanctions on trade (Caruso 2003), and the effect of corporate income taxes on the structure of trade (Balding and Dauchy 2013). ...
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Abstract:
Physicists have always paved the way for the development of international relations (IR) theories, and they continue to do so. In this chapter, I explore how theories of physics have influenced the IR discipline, as well as considering what IR theorists can learn from physics in the future.
Physics has undergone at least three major theoretical breakthroughs, which later impacted IR. First, Newton’s ideas on gravity can be used to explain dyadic international trade. Gravity models have also been used in the context of power politics to explain competitive and cooperative international dynamics.
Secondly, Einstein’s theory of relativity may have inspired the temporal turn in IR, which encompassed different conceptions of time, including thinking of time as relative. This led to a renewed research interest in time perception and the effects of time on international events and political decision-making. Thirdly, quantum mechanics contradicted the core assumptions of mainstream ontoepistemology, such as its determinism, materialism, atomism, locality, and subject-object divisibility, which had a significant impact on IR.
Nowadays, both physicists and IR theorists are searching for a Theory of Everything in their respective fields. IR theorists have experimented with theories that incorporate different levels of analysis, including neoclassical realism, but have not yet developed a comprehensive and fully satisfactory explanation of global politics.
In essence, the discipline of physics has provided a range of original ideas for IR scholars. Of the concepts discussed above, only gravity models are already mature; time relativity, quantum IR and the IR Theory of Everything are still in their infancy but are receiving increasing attention from IR scholars trying to make sense of
international reality.
... To evaluate the effectiveness of the sanctions, a large number of scholars have started to analyze the massive impacts of sanctions on Russia's macroeconomics, industries, and businesses. The effectiveness of sanctions is still debated, but there is no question that once imposed, those targeted and third-party countries will experience economic hardship (Biglaiser and Lektzian 2011;Canes 2000;Caruso 2003; Lektzian and Biglaiser 2013;Yang et al. 2004). ...
This study establishes a comprehensive suite of sanction indices and employs the time-varying vector autoregressive dynamic spillover index (TVP-VAR-DY) model, to examine the spillover effects of EU economic sanctions against Russia on oil prices and share prices of third-country energy companies, as well as takes China and the USA as examples for analysis. The findings indicate that sanctions targeting the energy sector are the primary drivers of volatility in oil prices and energy company stock prices. The impact on Chinese energy firms’ stock prices is more pronounced, while the effects on their American counterparts are more enduring. The indirect impact of EU sanctions on Russia on China is greater than that of the USA. Both direct and indirect sanctions exhibit comparable spillover effects on oil and stock prices. Direct sanctions have better explanatory power for stock price fluctuations, while indirect sanctions have better explanatory power for oil price fluctuations.
... The funny part is that this effect is intended to occur even though trade suspensions, capital flows, and international aid are not imposed. However, much attention has been paid to how economic sanctions affect economic growth, national currency, employment, poverty, and government consumption [16,23,[35][36][37]. While other studies analyzed the effectiveness of economic sanctions by empirically investigating their failures or successes [17,38,39]. ...
One essential weapon of international politics for promoting peaceful international cohabitation is the imposition of political and economic sanctions. Nonetheless, there is ongoing debate on the efficiency of punishments in generating sufficient disutility to guarantee compliance. Therefore, this study analyses the impact of US and UN economic sanctions on income inequality in the African target and compares the results with those of the Asina targeted states covering the period 1980–2019, using the Bayesian generalized method of moment’s technique. These Bayesian generalized methods of moments were chosen due to their ability to address the dynamics of several entities in the data. The variables employed for empirical investigation include income inequality, economic sanctions, trade sanctions, and financial sanctions. The findings reveal the contribution of economic sanctions to high income inequality, as the study finds a positive relationship between all measures of sanctions adopted in this study and income inequality. The study further finds that African countries seem to suffer the most from the execution of these sanctions compared to Asian countries. From a policy perspective, the current study suggests implementing targeted assistance programs for vulnerable groups. This can include offering financial support or job training programs for those affected by the sanctions, such as low-income workers or small businesses. Additionally, policymakers could prioritize investments in sectors that are less impacted by the sanctions, creating alternative job opportunities and reducing income disparities. By addressing the specific needs of disadvantaged groups and diversifying the economy, the negative effects of economic sanctions on income inequality can be mitigated.
... Table 2 presents the summary of some studies on the consequences of economic sanctions. Most studies conclude that economic sanctions hurt economies by negatively affecting their income and trade [18][19][20][21][22]. Due to variations in the coverage, severity, and duration of sanctions, it is nearly impossible to assess their absolute impact. ...
Since 2014, economic sanctions between Russia and Western nations have significantly altered the global seafood trade. The consequent decline in bilateral trade also had spillover effects on the rest of the world (ROW). According to earlier studies, economic sanctions appear to negatively impact bilateral trade and income. However, few studies examine how Russian sanctions affect the world as a whole and estimate their effects on the fisheries industry. This study seeks to close this gap by quantifying the extent to which Russian sanctions have impacted trade in terms of trade deflection, trade destruction, trade depression, and trade creation. To this end, panel data from 185 countries were created for the years from 2005 to 2020. With trade policy variables that account for changes in trade channels, a structural gravity trade model was specified. Based on calculations using the Poisson pseudo-maximum likelihood (PPML) fixed effect model, economic sanctions led to a 119.28% surge in Russia’s seafood imports from the rest of the world (ROW), alongside a 39% decline in imports from Western countries. The extent of trade deflection, which includes the exports of Western nations diverted from Russia to the ROW markets, increased by 5.49%. The results demonstrate that trade between sanctioned states, as well as global trade, is significantly impacted by economic sanctions.
... Much of the empirical literature has so far focused on the direct negative trade effects of sanctions on target countries without decomposing these altered trade flows according to potential trade partners' economic and political ambitions (Afesorgbor, 2019;Caruso, 2003;Dai et al., 2021;Du & Wang, 2022;Felbermayr et al., 2021;Felbermayr, Kirilakha, et al., 2020;Kirikakha et al., 2021;Peterson, 2021). There is also literature on how individual firms adjust their trade in response to sanctions (Crozet et al., 2021;Crozet & Hinz, 2020;Gullstrand, 2020;Haidar, 2016;. ...
Motivated by the claim that China and Russia purposefully and systematically undermine Western sanction efforts, we study the effects of US and EU sanctions on trade flows between sanctioned and third countries during the period 2002–2019. We find no evidence of systematic sanction busting by Russia. For China, our results are more ambiguous. While we do not find robust evidence for an increase in overall trade between China and countries targeted by Western sanctions, trade in (raw) materials and critical goods increases notably.
... 2 To the best of our knowledge, only a handful of studies have investigated that issue. Notable exceptions are the empirical analyses of Caruso (2003) and Yang et al. (2009) who estimate a panel gravity model to examine the impacts of the sanctions on bilateral trade either between the sanctioning and the sanctioned nations or between the target and third countries. affect the prices formed at both of these destination markets and are performed up to the point whereby a zero marginal profit is obtained by each arbitrager at each destination market. ...
This paper examines the impact of trade sanctions, imposed against large exporting nations, on the degree of spatial integration achieved between non-sanctioned importing markets. The analysis is conducted under a parity bounds framework based on Negassa and Myers (American Journal of Agricultural Economics, 89, 2007, 338). We apply this model to investigate the effects of the 2012-2016 sanctions against Iran's petrochemical exports on the main importing markets in Asia and we use it to measure the degrees of spatial integration attained outside and during the sanction period. Our findings document a complete reconfiguration of the spatial extent of the methanol markets. Outside of the sanction period, a high degree of market integration was achieved among the main Asian markets. In contrast, we observe the emergence of two little integrated market areas, China and India on one side and South Korea and SouthEast Asia on the other, when sanctions are imposed.
... We view the theoretical and empirical disentangling of the underlying dynamic channels and causes as interesting and important tasks that future work ought to address. For now, the key implication of our findings is that, when assessing the impact of sanctions on trade, 3 Our work is also related to several other contributions that use the gravity model to estimate the effects of sanctions on trade (e.g., Hufbauer and Oegg (2003), Caruso (2003), Yang et al. (2004), and Afesorgbor (2018)). The main differences between these papers and ours can be summarized as follows: (i) we rely on a newer database; (ii) our analysis is based on the latest developments in the empirical gravity literature; and (iii) we develop new insights on the evolution of sanctions. ...
... Economic sanctions are considered to be a less violent substitute for the war between states in which the imposing state isolates the target state by limiting the trade opportunities it could have [63]. In the current globalized economy, the only way sanctions could work is with an unshakable solidarity [64]. ...
With the birth of Fordism and the expansion of the markets beyond the states’ borders, national supply chains have evolved into international and global supply chains. Some countries fared much better than others in becoming an irreplaceable part of the said chain. For instance, one could mention Iran due to its rich oil reserves and geopolitical position on the globe, China with its cheap human capital and high-profit margins, and the US with its massive reach all around the world. This study examines the US’s mediatory effect on Iran-China’s relations. Consequently, a derivative of the gravity model has been devised to test the said hypothesis. The dependent variables to test this hypothesis are China’s imports from Iran and China’s exports to Iran. The model controls the two states’ currency value, their inflation rate, and the price of crude oil. Furthermore, the signing of the Joint Comprehensive Plan of Action in 2015 and the US’s Maximum Pressure Policy in 2017 are the main variables of interest in the model in form of two dummy variables. The study employs a novel multidisciplinary approach both on the methodology front by introducing an abstract conception of distance and on the epistemology front by combining international economics literature with that of the international relations. According to the results, the US’s foreign policy has a significant buffering effect on the trade between Iran and China. In other words, the United States acts as a distancing factor between the two states of Iran and China. This distancing effect, however, is stronger for China’s imports from Iran in comparison to China’s exports to Iran.
... US sanctions from 1969 to 2000 have led to the US disinvesting in these countries, although they have not caused global disinvesting by third parties (Lektzian and Biglaiser, 2013). Using a gravity trade model, Caruso (2003) demonstrates that unilateral US sanctions diminished trade flows by 59 percent, while multilateral ones (in cooperation with the G7) caused a fall in trade flows by 81 -82 percent. Hatipoglu and Peksen (2018) show that financial sanctions are more detrimental to the stability of banking systems than trade sanctions. ...
We analyze the influence of sanctions on bilateral trade flows between the European Union and the Russian Federation during 2015-2019. Despite trade sanctions and counter-sanctions being imposed against particular groups of commodities, their influence affected trade flows between Russia and the EU in all sectors. The proposed methodology of estimating the effect of sanctions on EU-Russia trade is based on the idea of calculating trade potentials and comparing them with actual values. The augmented gravity approach is used to construct an econometric model, while the Poisson pseudo maximum likelihood method is applied to derive unbiased estimates. It is shown that during 2015-2019, due to EU sanctions Russia lost USD 41.3 billion in export revenues annually, comprising 2.5 percent of its GDP. Russian exports to Europe declined in all basic industries, but the petroleum industry took 91.2 percent of the total losses. European aggregate exports to Russia have not suffered from mutual sanctions: although the European food industry lost USD 2.7 billion annually, these losses were compensated for by export growth in other industries.
... Numerous studies have explored the political (Marinov, 2005;Bapat et al., 2016;Gutmann et al., 2020;McLean and Whang, 2021, e.g,) and economic e↵ects of sanctions on sanctioned states (e.g, Hufbauer et al., 1990;Caruso, 2003;Kaempfer and Lowenberg, 2007;Yang et al., 2009;Etkes and Zimring, 2015;Neuenkirch and Neumeier, 2016;Shin et al., 2016;Haidar, 2017;Gharehgozli, 2017;Afesorgbor, 2019;Kavaklı et al., 2020;Crozet and Hinz, 2020;Amodio et al., 2021;Moghaddasi Kelishomi and Nisticò, 2022;Ghomi, 2022), thus focusing on the behaviours and costs su↵ered by the target. Overall, extant studies show that, in the majority of cases, sanctions decrease the target's economic activities, although the e↵ect largely depends on their comprehensiveness and multilateral nature. ...
We investigate the effect of economic sanctions on trade flows in countries sharing a border with sanctioned states. According to trade models, sanctions are expected to reduce trade flows as they disrupt established trading routes and economic relationships with suppliers and customers. However, there may also be instances where countries circumvent trade restrictions by clandestinely exchanging goods with sanctioned countries across the border and trading on their behalf, leading to an increase in imports and/or exports. To shed light on this issue, we employ a combination of large-N panel data analysis and comparative case studies using the synthetic control method. We find that, in the aggregate, neighbouring countries experience economic costs as sanctions disrupt trade. Yet, case studies uncover heterogeneity in countries’ responses, with some cases exhibiting an increase in trade flows. We discuss possible explanations for these outcomes in the case-study analysis.
... The interdependence of oil revenues, the import of consumer goods, the reduction of foreign investment, and capital flight are among the factors that have influenced the intensity of the results of the sanctions [4,6,34]. Previous research generally investigated the effect of sanctions on trade and investment [35][36][37][38][39][40][41]. But there is less research about the effect of sanctions on financial markets. ...
In recent years, the United States has increasingly used sanctions to control countries and promote its foreign policy objectives. Iran is one of the countries that has been the target of US economic sanctions for the past five decades. The purpose of the study is to investigate the impact of the sanctions on the interdependence and integration of Iranian financial markets from July 2013–May 2021 using the wavelet approach. The results show that the highest degree of correlation is related to exchange rate and gold price. Moreover, the interdependence and integration of financial markets increases in the long run. The highest impact on interdependence of financial markets in the short run and medium run is related to exchange rate and gold price. Finally, the integration of financial markets have increased since 2016.
... Due to good performance in representing international trade, the model gained popularity for estimation of factors affecting trade, migration and investment flows between countries (Anderson and Van Wincoop, 2003). To measure the impact of sanctions and political conflicts on the flows of international trade, the model has been extended to include dummy sanction variables and was widely applied in a number of empirical studies (Caruso, 2003;Crozet and Hinz, 2020;Hufbauer et al., 2007;Lamotte, 2012;Oegg and Hufbauer, 2003). According to Oegg and Hufbauer, the sanction coefficients in the model represent the deviations from the nonsanctioned trade-flow and do not include country specifics to avoid incorrect measurement for the sanctions impact. ...
Purpose
The article compares the effect of European Union (EU)-Russian sanctions imposed in 2014 with the influence of fluctuating oil prices on Danish trade.
Design/methodology/approach
In this paper annual import and export trade data between Denmark and 152 countries from the period 2002–18 were computed in STATA/SE 16.1 using the Gravity model to evaluate the effect of economic sanctions and the price of oil.
Findings
Results showed that the impact from the fall of oil price exceeded the negative effect from sanctions on Danish export. Additionally, the analyses suggest that the fall in oil price had a negative effect on Danish import. Even so, Danish import significantly increased due to growth in supplies of energy resources from Russia.
Originality/value
This study explains the overlapping effects of EU-Russian sanctions and fluctuating oil prices on Danish trade. This methodology can be expanded to encompass multiple countries using the two-sided Gravity model.
... Much of the empirical literature has so far focused on the direct negative trade effects of sanctions on target countries without decomposing these altered trade flows according to potential trade partners' economic and political ambitions (Afesorgbor, 2019;Caruso, 2003;Dai et al., 2021;Du & Wang, 2022;Felbermayr et al., 2021;Felbermayr, Kirilakha, et al., 2020;Kirikakha et al., 2021;Peterson, 2021). There is also literature on how individual firms adjust their trade in response to sanctions (Crozet et al., 2021;Crozet & Hinz, 2020;Gullstrand, 2020;Haidar, 2016;. ...
Motivated by the claim that China and Russia purposefully and systematically undermine Western sanction efforts, we study the effects of US and EU sanctions on trade flows between sanctioned and third countries during the period 2002–2019. We find no evidence of systematic sanction busting by Russia. For China, our results are more ambiguous. While we do not find robust evidence for an increase in overall trade between China and countries targeted by Western sanctions, trade in (raw) materials and critical goods increases notably.
... Much of the empirical literature has so far focused on the direct negative trade effects of sanctions on target countries without decomposing these altered trade flows according to potential trade partners' economic and political ambitions (Afesorgbor, 2019;Caruso, 2003;Dai et al., 2021;Du & Wang, 2022;Felbermayr et al., 2021;Felbermayr, Kirilakha, et al., 2020;Kirikakha et al., 2021;Peterson, 2021). There is also literature on how individual firms adjust their trade in response to sanctions (Crozet et al., 2021;Crozet & Hinz, 2020;Gullstrand, 2020;Haidar, 2016;. ...
Motivated by the claim that China and Russia purposefully and systematically undermine Western sanction efforts, we study the effects of US and EU sanctions on trade flows between sanctioned and third countries during the period 2002–2019. We find no evidence of systematic sanction busting by Russia. For China, our results are more ambiguous. While we do not find robust evidence for an increase in overall trade between China and countries targeted by Western sanctions, trade in (raw) materials and critical goods increases notably.
... Earlier work estimating the effects of sanctions (independent of type) on international trade includes, inter alia,Caruso (2003),Yang et al. (2004) andAfesorgbor (2018). Other authors have also studied alternative outcomes of interest; see, e.g.,Besedeš et al. (2017) for the effect of (financial) sanctions on capital flows.4 ...
Sanctions encompass a wide set of policy instruments restricting cross-border economic activities. In this paper, we study how different types of sanctions affect the export behaviour of firms to the targeted countries. We combine Danish register data, including information on firm-destination-specific exports, with information on sanctions imposed by Denmark from the Global Sanctions Database. Our data allow us to study firms' export behaviour in 62 sanctioned countries, amounting to a total of 453 country-years with sanctions over the period 2000-2015. Methodologically, we apply a two-stage estimation strategy to properly account for multilateral resistance terms. We find that, on average, sanctions lead to a significant reduction in firms' destination-specific exports and a significant increase in firms' probability to exit the destination. Next, we study heterogeneity in the effects of sanctions across (i) sanction types and sanction packages, (ii) the objectives of sanctions, and (iii) countries subject to sanctions. Results confirm that the effects of sanctions on firms' export behaviour vary considerably across these three dimensions.
... 3 Studies have documented that the economic sanctions have direct adverse effects on trade (Afesorgbor, 2019;Caruso, 2003;Hufbauer et al., 2008;Yang, Askari, Forrer, & Teegen, 2004) and negatively influence macroeconomic variables. Some studies have illustrated that economic sanctions contract real sectors and reduce economic growth (Evenett, 2002;Hufbauer et al., 2008;Neuenkirch & Neumeier, 2015). ...
This paper examines whether financial constraints of firms influence their pricing behavior. To do so, a product-level dataset is used from Iranian-listed manufacturing companies. This study employs the imposition of international sanctions against Iran in 2012 as an exogenous shock to identify the effect of financial constraints. According to the results financially restricted firms keep their prices lower than their counterparts to increase their internal financial resources. The results show the difference between output prices of constrained and unconstrained firms rising after the imposition of sanctions. In addition, this relationship is affected by the degree of export-orientation of firms, and only exporter firms that experienced the negative demand shock after the sanctions, set their price lower to reduce the financial pressures. Also, the degree of dependency on imported input does not play a significant role in the relationship and ownership structure of firms has a significant impact on the relationship.
... Sanctions are already shown to have adverse effects on democracy and human rights (Escribà-Folch & Wright, 2010;Peksen, 2009;Peksen & Drury, 2010;Wood, 2008), public health (Allen & Lektzian, 2013;Peksen, 2011), life expectancy (Gutmann, Neuenkirch, & Neumeier, 2021), childhood mortality, maternal mortality, and malnutrition in babies (Ali & Shah, 2000), along with income inequality and poverty (Afesorgbor & Mahadevan, 2016;Choi & Luo, 2013;Lee, 2018;Neuenkirch & Neumeier, 2016). They also have adverse effects on economic growth (Neuenkirch & Neumeier, 2015), international trade (Afesorgbor, 2019;Caruso, 2003;Crozet & Hinz, 2020;Felbermayr, Syropoulos, Yalcin, & Yotov, 2019;Yang, Askari, Forrer, & Teegen, 2004), capital flows (Besedeš, Goldbach, & Nitsch, 2017), foreign direct investments (Mirkina, 2018), and banking (Hatipoglu & Peksen, 2018), as well as exchange rate volatility (Dreger, Kholodilin, Ulbricht, & Fidrmuc, 2016;Laudati & Pesaran, 2021;Wang, Wang, & Chang, 2019). In sum, these findings suggest that sanctions impose significant human and social costs, in addition to direct economic and political costs. ...
International sanctions have significant economic effects with long‐lasting negative consequences for human development. However, academic research on the gendered effects of sanctions is scarce. In fact, most work on sanctions has been either gender neutral or gender blind. This article examines the labor market effects of economic and noneconomic sanctions, imposed by the United States and the United Nations, on male and female employment in manufacturing industries in Iran. The empirical analysis is based on four‐digit industry‐level employment data from 102 manufacturing industries between 1995 and 2014. Our main findings suggest that international sanctions have disproportionate effects on male and female employment. In particular, we find that sanctions hurt female employment significantly more than male employment. This effect is further compounded in industries that are more capital intensive, where labor compensation has a relatively low share in value added. Furthermore, in industries with relatively high reliance on imported inputs, female employment suffers more from sanctions.
... Sanction costs vary between santioner countries, even across different sectors imposed by the same sanctioner country (Botterill & McNaughton, 2008). It is a plausible conjesture that the higher deadweight welfare loss for the sanctioned country, the higher the probability of change its compliance behavior (Black & Cooper, 1987;Caruso, 2003;Giumelli, 2011). ...
This paper intends to establish conceptual foundations for analyzing the economic dimensions of a territorial military conflict. The Intraregional Trade Disruption from War Simulator (ITDW-Simulator) attempts to estimate the heterogeneous macroeconomic effects of the military conflict. The model suggests two primary indicators and four secondary indicators. The final trade suffocation index (TS-Index) and the final investment desgrowth from war function (w) measure trade disruption's potential impact on international trade patterns and economic development. The agriculture exports, industrial and manufacturing exports, service exports, and FDI flows capture the trade and investment interdependency. The model investigates the impact of the Russo-Ukraine military conflict on the bilateral trade and investment between the Russian Federation and the European Union.
... Sanction costs vary between santioner countries, even across different sectors imposed by the same sanctioner country (Botterill & McNaughton, 2008). It is a plausible conjesture that the higher deadweight welfare loss for the sanctioned country, the higher the probability of change its compliance behavior (Black & Cooper, 1987;Caruso, 2003;Giumelli, 2011). ...
This paper intends to establish conceptual foundations for analyzing the economic dimensions of a territorial military conflict. The Intraregional Trade Disruption from War Simulator (ITDW-Simulator) attempts to estimate the heterogeneous macroeconomic effects of the military conflict. The model suggests two primary indicators and four secondary indicators. The final trade suffocation index (TS-Index) and the final investment desgrowth from war function (w) measure trade disruption's potential impact on international trade patterns and economic development. The agriculture exports, industrial and manufacturing exports, service exports, and FDI flows capture the trade and investment interdependency. The model investigates the impact of the Russo-Ukraine military conflict on the bilateral trade and investment between the Russian Federation and the European Union.
... Sanction costs vary between santioner countries, even across different sectors imposed by the same sanctioner country (Botterill & McNaughton, 2008). It is a plausible conjesture that the higher deadweight welfare loss for the sanctioned country, the higher the probability of change its compliance behavior (Black & Cooper, 1987;Caruso, 2003;Giumelli, 2011). ...
This paper intends to establish conceptual foundations for analyzing the economic dimensions of a territorial military conflict. The Intraregiona l Trade Disruption from War Simulator (ITDW-Simulator) attempts to estimate the heterogeneous macroeconomic effects of the military conflict. The model suggests two primary indicators and four secondary indicators. The final trade suffocation index (TS-Index) and the final investment desgrowth from war function (−) measure trade disruption's potential impact on international trade patterns and economic development. The agriculture exports, industrial and manufacturing exports, service exports, and FDI flows capture the trade and investment interdependency. The model investigates the impact of the Russo-Ukraine military conflict on the bilateral trade and investment between the Russian Federation and the European Union.
... A large body of this literature studies the effects of sanctions on the bilateral and multilateral trade. Yang et al. (2009), Caruso (2003, and Frank (2018) find a significant negative effect of sanctions on trade, while Kohl and Klein Reesink (2019) cast doubts on the robustness of the latter authors' results. Hinz (2017) studied the global effect of recent sanctions on Russia, Iran, and Myanmar and found that the overall cost of these sanctions in 2014 was about 50 billion dollars, which is equivalent to 0.4% of global trade. ...
The sanctions imposed on Iran at the beginning of 2012 have simultaneously limited the country's access to the international financial system, levied a strict boycott on Iran's oil and petrochemical exports, and limited imports of intermediate goods. This paper tries to quantify the aggregate and heterogeneous effects of these sanctions. Applying the synthetic control method, I show that the sanctions had persistent and significant effects on the Iranian economy. The cost reached its maximum of 19.1% of real gross domestic product 4 years after the application of the sanctions, and the economy has not fully recovered after their removal. I trace the poverty dynamics for different household groups after the sanctions by adopting a synthetic panel using Iran's household income and expenditure survey data. Inconsistently with the sanctions' initial goals, poverty dynamics suggest that households working in governmental sectors and educated households are unaffected by the sanctions. Instead, the sanctions condemn young, illiterate, rural, or religious minority households to poverty.
... Correspondingly, there is a growing body of research that investigates the socioeconomic impacts of humans on environmental quality. Since the CES could influence both economic activities (Barry and Kleinberg 2015;Caruso 2003;Vidal 2010) and social conditions of the target country (Ali Mohamed and Shah 2000;Cortright and Lopez 2000;Garfield 2002;Peksen and Drury 2010), this evokes the idea of examining the impact of CES on the environmental quality of the sanctioned state. ...
This article examines the impacts of cross-border economic sanction (CES) on environmental performance by using the structural gravity model for 207 target countries during the 1995-2018 period. We consider various forms of sanction, including arms, military, trade, finance, travel, and others, while the environmental performance index (EPI) is used to measure the environmental performance. The results reveal that the imposition of a sanction, especially arm, financial, travel, and other sanctions has a significantly negative effect on the EPI score. The effects are also largely heterogeneous across sanctioned countries in terms of their economic development. The negative impact of sanctions on the environmental performance is found the most evident in developing transition countries, followed by developed economies but insignificant if the target is a developing nation. Furthermore, the properties of the financial market and the institutional quality of the sanctioned states critically affect the relationship between CES and EPI. Particularly, either the better financial market and institution development, the high degree of financial openness, central bank independence, or well-developed institutional quality helps target countries mitigate the consequences of CES on EPI. The empirical findings provide insightful implications about the socially responsible aspect of sanctions and vital lessons for economists and policymakers in the target countries in reducing the environmental costs of sanctions.
With the help of a new, comprehensive sanctions database and utilizing the latest developments in the structural gravity literature, we estimate the effects of economic sanctions on international trade. We demonstrate that the average effects of sanctions hide significant heterogeneity depending on the type of sanctions considered, their duration, objectives and sender types. We also zoom in on the sanctions against Iran. We find that their effects are significant but also widely heterogeneous across sanctioning countries, even within the European Union, and depend on the direction of trade. We complement the aggregate analysis with estimates for 170 sectors, showing that sanctions have been effective in decreasing bilateral trade at the sectoral level while the effects vary significantly across sectors and across complete versus partial trade sanctions.
La aplicación de sanciones ha aumentado de manera considerable en los últimos
tiempos. En particular, las sanciones a las industrias petroleras son un fenómeno
relevante por los efectos que se generan cuando los países sancionados buscan
deshacerse de las limitaciones impuestas por las medidas coercitivas y sostener su
actividad petrolera. Para conocer mejor las estrategias de resiliencia aplicadas por
países petroleros sancionados se realiza un estudio de casos entre Irán, Rusia y
Venezuela, evaluando la evolución de variables macroeconómicas, de producción
y comercialización petrolera, y de nivel de democracia, junto con las prácticas
aplicadas tanto en gerencia del ciclo de vida total y gerencia de la tecnología de las
industrias petroleras, además de la política exterior. Esto permitió identificar un
impacto diferenciado de las sanciones, dependiendo en buena medida de las
capacidades técnicas, industriales, bancarias, tecnológicas y de acceso a
mercados de capitales previas a las sanciones. Se identificó un amplio abanico de
prácticas irregulares de comercialización y financiación, además de la configuración de un bloque de países sancionados que cooperan entre ellos y con otros aliados antagonistas a los países emisores de las sanciones.
This research delves deeply into the intricate dynamics of economic sanctions levied by Western nations against Russia, investigating their wide-ranging implications. Employing a blend of quantitative analysis and hypothesis testing, the study unravels a notable insight: these sanctions carry a more substantial impact on the economies of the sanctioning nations themselves than on Russia. The study introduces the "Mary-Jeanne" theory, developed by Professors Jeanne Kaspard Kamel and Richard Hanna Beainy from Holy Spirit University. This theory asserts that the inefficacy of the sanctions on Russia, and their subsequent repercussions on Europe, emanate from the targeting of essential raw materials, particularly oil and gas. The research recommends an alternative approach to sanctions, advocating for the utilization of Russian gas at a moderated price cap, rather than a complete embargo on the commodity as currently enforced. This strategic shift would seek to address the present situation, wherein Russia encounters relatively minor losses due to the low raw material value, while Western industrialized nations grapple with substantial declines in their economies due to the high finished goods' value.
This report aims to contribute with knowledge and recommendations for Norwegian policymakers’
effort to prevent, uncover, and manage economic activity in Norway that threatens national
security. Our report poses two research questions:
(1) What does the academic literature say about the effects of economic statecraft?
(2) (2) What are the implications of this knowledge for the Norwegian government’s efforts
to reduce security challenges from economic activity?
We establish an analytical framework to understand the effects of economic statecraft. From this
analytical framework, we deduce categories of effects, depending on whether the subject
perspective is that of the sender or the recipient state, and whether the results are perceived as
gross or net for the subject. The framework strengthens our ability to utilize findings and
conclusions in the literature on effects of economic statecraft in a national security context.
The research on effects of economic statecraft is heavily concentrated on the topic of formal,
negative economic sanctions, but also on informal, negative sanctions, positive sanctions,
manipulation of access to economic networks, long-term engagement, and transfers of military
technology. The research on sanctions and other economic statecraft instruments is primarily
concerned with whether the sender state achieves its political objectives. There are also
numerous studies on the political, economic, and social gross results for recipient states in the
literature. Less attention is devoted to net results.
We offer the following six recommendations to the Norwegian government:
1. Norway should use a diverse set of tools to prevent, uncover, and manage economic
activity that threatens national security.
2. Norwegian authorities should involve commercial actors, raise awareness about threats
and challenges in the private sector and offer advice and directions on managing them.
3. Norwegian authorities should pursue international cooperation.
4. The knowledge about costs and trade-offs of economic statecraft should be improved.
5. Threats and vulnerabilities from economic activity that threatens national security should
be assessed in connection to other types of threats and vulnerabilities.
6. The research on effects of economic statecraft in light of the rapid technological development should be strengthened.
This paper quantifies the effects of economic sanctions on cross-border Mergers and Acquisitions’ (M&As) using a structural gravity model. It gauges (1) the impact that sanctions have directly on M&As from the sanctioning to the sanctioned country; (2) if a significant share of M&As employ transit countries to circumvent sanctions; and (3) the heterogeneous effect of sanctions on M&As by sector and by type or combination of types of sanctions. The results show that sanctions lead to 13% drop in bilateral M&As, and that the role of transit countries for circumventing them is limited. The effects are widely heterogeneous across sectors and types of sanctions. At the sectoral level, the manufacturing sector is significantly less affected than the other sectors (6.9% vs. 17.4%). Sanctions that combine restrictions in trade, financial flows and travelling are the most harmful with the drop in the number of M&A projects that ranges from 65% to 75%.
Tarihsel süreçte dış politika ve askeri müdahale seçenekleri arasında bulunan ve rakibin gücünü zayıflatmak amacıyla kullanılan yaptırımlar, son dönemlerde daha fazla tercih edilir olmuştur. Yaptırımlardan temel beklenti, hedef ülkenin siyasi, ekonomik ya da askeri bir konuda davranışlarını değiştirmesi ya da belirli faaliyetlerden kaçınmasını sağlamaktır. Bu amaçla hedef ülke siyasi ve ekonomik olarak baskı altına alınmaktadır. Yaptırımların siyasi ve ekonomik olmak üzere iki uygulama alanı bulunmaktadır. Bu çalışmanın konusu olan İslam Devrimi sonrası İran’a yönelik yaptırımlar, farklı boyutlarda uygulanmıştır. 2006 yılından itibaren ABD’ye ek olarak uluslararası toplumun ve 2012 yılından sonra AB’nin desteğiyle yaptırımların İran ekonomisi üzerindeki etkisi çok daha fazla hissedilir olmuştur. 2015 yılında imzalanan Nükleer Anlaşma’nın ardından İran ile başta ABD olmak üzere uluslararası toplum arasında normalleşme beklenirken, Mayıs 2018’de anlaşmanın ABD tarafından tek taraflı iptal edilmesi sonrasında yaptırımlar tekrar ve daha şiddetli bir şekilde uygulanmaya başlanmıştır. Bu çalışmada, ABD’nin İran’a yönelik İslam Devrimi’nden sonra uyguladığı ekonomik yaptırımların etkilerinin ortaya konması amacıyla İran’ın 1978-2020 dönemine ait başlıca ekonomik göstergeleri ve dış ticaret verileri tanımsal analizlerle incelenmektedir. Yaptırım uygulanmaması ve planlanan ekonomik büyümesini sürdürmesi halinde İran ekonomisindeki muhtemel gelişmeler analize dâhil edilmiştir. Yapılan analizler sonucunda, özellikle 2012 sonrasında uygulanan ekonomik yaptırımların İran ekonomisini derinden etkilediği görülmüştür. Mevcut veriler dikkate alındığında, Mayıs 2018 sonrasında ABD’nin aldığı yaptırım kararlarının İran ekonomisinde daha fazla olumsuzluğa yol açabileceği ve İran’ın dış ticaret ortaklarına yansımasının değişik boyutlarda olabileceği öngörülebilir.
This article examines the economic impact of sanctions on North Korea from 2000 to 2020. More specifically, it analyzes the trend of the main economic indicators—namely, GDP and trade—using statistical data from trading partners and international organizations in an effort to evaluate the overall effectiveness of this policy tool. After providing a brief overview on the evolution of the North Korean nuclear program, the first section frames the different types of sanctions imposed on the Democratic People’s Republic of Korea by the leading senders over the years. The second part focuses entirely on the analysis of the economic impact of these measures. The descriptive evidence suggests that the sanctions remarkably impacted the North Korean economy and trade. However, the ability of North Korea to establish an efficient mechanism of sanctions busting, backed particularly by China and Russia, has undermined the effectiveness of these sanctions.
Ekonomik yaptırımlar, devletler için hedeflenen siyasi amaçları elde
etmek konusunda etkili dış politika araçları arasında gösterilmektedir. Ancak yaptırımların da sınırları vardır ve yaptırımlar, uygulayan ülke için her
zaman beklendiği sonuçları vermeyebilmektedir.
Studies suggest that home countries impose economic sanctions following host state expropriation of home firms. However, and not addressed in the empirical literature, is the possibility that sanctions lead targeted countries to nationalize firms from sender countries. Using bilateral expropriation data from 1985 to 2010, and controlling for endogeneity issues, we find that sanctions significantly increase expropriation risk, encouraging targeted states to inflict pain in a reciprocal manner on sender countries. Expropriations also enable targeted nations to acquire economic assets from foreign firms, undermining the restricting goals of sanctioning states, and provide opportunities for leaders to show political resolve at home by standing up to senders. Our results are robust using monadic or dyadic data and different statistical methods, indicating another sanction-busting strategy used by targeted countries.
This paper sets out to explore the nexus between Russia and Turkey regarding their geopolitical uncertainty measures (GPR) during the Putin Administration era in Russia. The innovative Caldara and Iacoviello indices and the Vector Autoregressive (VAR) methodology are adopted. This study sheds light on the series of geopolitical events that have taken place in Russia and Turkey in recent decades. Empirical outcomes reveal that Turkish geopolitical uncertainty is a weak influencer that increases Russian GPR in the short-term while decreasing it in the medium-term. The reverse effect does not hold. The nexus between geopolitical risk in Turkey and Russia is found to be unstable. Uncertainty in Turkey constitutes both a negative and a positive determinant of geopolitical stability in Russia, depending on the time horizon of the impact. Russia could take advantage of Turkish positive effects in the medium-run. This could be alarming for investors but could also prove beneficial as they should not invest in Russian assets when the country’s geopolitical risk is elevated due to Turkey’s geopolitical instability. Additionally, it is documented that energy financial markets in Russia are not influential on geopolitical uncertainty.
Abstract
Exports and imports are an important tool for developing countries to earn foreign
exchange earnings. The purpose of this paper is to investigate the effect of economic
sanctions on Iran's trade with major trading partners in the sports industry and countries,
including China, Turkey, Finland, Saudi Arabia, Japan, France, Azerbaijan, Russia,
Kazakhstan and Kyrgyzstan, and also check the status of the economy Iran is under post�sanctions. In order to assess the gravity model and panel data is used. Countries in the
group of countries that have trade relations with Iran are grouped downwards and upwards.
Data based on information from the 1999 to 2012 period, and the resources of the Central
Customs Data Center is the Islamic Republic of Iran and the World Bank. The results
show that GDP, dummy variables prior period and current weak sanctions and prior period
of strong sanctions on Iran's trade balance has a positive effect on the course. Population
variables, exchange rates, variable distance and dummy variables of strong sanctions the
current period's has a negative effect on the share of trade with major trading partners in
the sports industry. Although investigation of the share of trade`s share variation in goods
sports Iran with its trading partners by using E- GARCH method shows that weak
sanctions have a greater impact on the variation of the share of those changes is still
asymmetric. In other words, Strong sanctions of the current period have a negative effect
on the share of business partnerships, and weak sanctions have a greater impact on the
prediction of trade volatility in the industry.
A general equilibrium model of world trade with two differentiated-product industries and two factors is developed to illustrate how the gravity equation, including exporter and importer populations, as well as incomes, "fits in" with the Heckscher-Ohlin model of interindustry trade and the Helpman-Krugman-Markusen models of intraindustry trade. The study extends the microeconomic foundations for a generalized gravity equation in Bergstrand (1985) to incorporate relative factor-endowment differences and nonhomothetic tastes. Empirical estimates of this generalized gravity equation for single-digit Standard Industrial Trade Classification industry groups yield plausible inferences of their capital-labor intensities. Copyright 1989 by MIT Press.
Despite the gravity equations' empirical successes in "explaining" trade flows, the model's predictive potential has been inhibited by an absence of strong theoretical foundations. A general equilibrium world trade model is presented from which a gravity equation is derived by making certain assumptions, including perfect international product substitutability. If, however, trade flows are differentiated by origin as evidence suggests, the typical gravity equation is misspecified, omitting certain price variables. The last section presents empirical evidence supporting the notion that the gravity equation is a reduced form from a partial equilibrium subsystem of a general equilibrium model with nationally differentiated products.
Examining the correlation between trade and income cannot identify the direction of causation between the two. Countries' geographic characteristics, however, have important effects on trade and are plausibly uncorrelated with other determinants of income. This paper, therefore, constructs measures of the geographic component of countries' trade and uses those measures to obtain instrumental variables estimates of the effect of trade on income. The results provide no evidence that ordinary least-squares estimates overstate the effects of trade. Further, they suggest that trade has a quantitatively large and robust, though only moderately statistically significant, positive effect on income.
Scholars and policymakers generally assume that multilateral cooperation is a necessary condition for economic sanctions to be of any use. However, previous statistical tests of this assumption have shown that sanctions are more successful with lower levels of cooperation. This puzzle calls into question established theories of economic statecraft as well as theories of international cooperation. In this article I test possible explanations for the ineffectiveness of multilateral cooperation on sanctions events using James Fearon's (1998) breakdown of cooperation into bargaining and enforcement phases as a framework for discussion The empirical results show that when multilateral economic sanctions fail, their failure is due to enforcement, not bargaining problems Without the support of an international organization, cooperating states backslide from promises of cooperation Backsliding occurs because of domestic political pressures and uncertainty about the intentions of the other sanctioning countries; backsliding causes an initial burst of cooperative behavior to decay over time. Without institutional support, cooperation is worse than useless—it is counterproductive. This result suggests that international cooperation is a more fragile equilibrium than previously thought but undercuts realist arguments that international organizations are unimportant.
Examining the accuracy of the monopolistic competition theory's predictions for import volumes, we assess whether this theory accounts for the empirical success of the gravity equation. Since certain factor-endowment based theories have the same prediction for import volumes, we employ resampling techniques to address this model identification problem. We use extraneous information on the allocation of factor endowments in a given sample to identify which model is driving trade flows. We find that the accuracy of the monopolistic competition theory's prediction improves in samples where the factor endowment allocations generate a higher share of differentiated goods trade. By an analogous criterion, the Heckscher-Ohlin models make a much less accurate prediction. We conclude that the monopolistic competition theory is more likely to account for the gravity equation's success, especially in explaining trade among industrial nations.
of the United States 1998 reports that real 1996 tariff revenue was 1 decr...
Many sources of economic data cover only a limited set of states at any given point in time. Data are often systematically missing for some states over certain time periods. In the context of conflict studies, economic data are frequently unavailable for states involved in conflicts, undermining the ability to draw inferences of linkages between economic and political interactions. For example, simply using available data in a study of trade and conflict and disregarding observations with missing data on economic variables excludes key conflicts such as the Berlin crisis, the Korean War, the Cuban Missile Crisis, and the Gulf War from the sample. A set of procedures are presented to create additional estimates to remedy some of the coverage problems for data on gross domestic product, population, and bilateral trade flows.
I. Some shortcomings of traditional trade doctrine and the concept of income potential, 305. — II. Interregional input-output
analysis and international trade, 310. — III. Conclusions, 318.
Little attention has been paid to how and when economic sanctions end, especially compared with the amount of research on their effectiveness. A game in which the ending of sanctions is part of interstate bargaining about a contested policy is analyzed. In case of audience costs, sanctions may occur because governments use strategies that commit them to their ideal policy position. Governments use as constraints domestic political groups that have an interest in the disputed policy. Alternatively, rent-seeking enables governments to obtain political gain from the opportunities for side payments provided by sanctions. Results show that commitment strategies help states improve their bargaining position and make the resolution of the conflict more difficult. Data on the duration and ending of sanctions initiated in the period between 1914 and 1990 are used to test these hypotheses. The analyses provide clear evidence that commitment strategies affect the duration of sanctions.
Robert A. Pape is Assistant Professor of Government at Dartmouth College. He is the author of Bombing to Win: Air Power and Coercion in War (Ithaca, N.Y.: Cornell University Press, 1996).
I greatly appreciate the comments of Robert Art, Michael Desch, Daniel Drezner, Fouad ElNaggar, Nelson Kasfir, Chaim Kaufmann, Lisa Martin, Michael Mastanduno, John Mearsheimer, Elizabeth Rogers, and Stephen Walt. I would also like to thank the Earhart Foundation for its generous support of this research.
1. As of August 31, 1994, the UN Security Council had approved partial or comprehensive actions against Iraq (1990), former Yugoslavia (1992), Libya (1992), Somalia (1992), Liberia (1992), Haiti (1994), the UNITA movement in Angola (1994), and Rwanda (1994), while in the UN's first four decades, the Security Council imposed mandatory sanctions only against Rhodesia (1966) and South Africa (1977). James C. Ngobi, "The United Nations Experience with Sanctions," in David Cortright and George A. Lopez, eds., Economic Sanctions: Panacea or Peacebuilding in a Post-Cold War World? (Boulder, Colo.: Westview, 1995), pp. 17-18.
2. Boutros Boutros-Ghali, "Supplement to an Agenda for Peace: Position Paper of the Secretary-General on the Occasion of the Fiftieth Anniversary of the United Nations," A/50/60, January 3, 1995, pp. 17-18; and "Sanctions: Do They Work?" Bulletin of the Atomic Scientists (November 1993), pp. 14-49.
3. The policy choice between economic sanctions and military coercion crosscuts the theoretical divide in international relations theory between liberal institutionalism and realism, which is about actors, not instruments. Whereas liberals see collective institutions as the critical actors in international politics, realists focus on self-seeking behavior by individual states. Both economic sanctions and military force are methods of employing power that can be used by either type of actor.
4. David A. Baldwin, Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985), p. 373.
5. Landmarks of the literature include Johann Galtung, "On the Effects of International Economic Sanctions: With Examples from the Case of Rhodesia," World Politics, Vol. 19, No. 3 (April 1967), pp. 378-416; Margaret P. Doxey, Economic Sanctions and International Enforcement (New York: Oxford University Press, 1971); Klaus Knorr, The Power of Nations: The Political Economy of International Relations (New York: Basic Books, 1975); and Donald L. Losman, International Economic Sanctions: The Cases of Cuba, Israel, and Rhodesia (Albuquerque: University of New Mexico Press, 1979).
6. Elizabeth S. Rogers, "Using Economic Sanctions to Control Regional Conflicts," Security Studies, Vol. 5, No. 4 (Summer 1996), p. 72. See also M.S. Daoudi and M.S. Dajani, Economic Sanctions: Ideals and Experience (Boston: Routledge and Kegan Paul, 1983), p. 12; Baldwin, Economic Statecraft, p. 4; Barry E. Carter, International Economic Sanctions: Improving the Haphazard U.S. Legal Regime (New York: Cambridge University Press, 1988), p. 233; William H. Kaempfer and Anton D. Lowenberg, "The Theory of International Economic Sanctions: A Public Choice Approach," American Economic Review, Vol. 78, No. 4 (September 1988), pp. 786-793; Lisa L. Martin, Coercive Cooperation: Explaining Multilateral Economic Sanctions (Princeton, N.J.: Princeton University Press, 1992), p. 250; David Cortright and George A. Lopez, "Research Concerns and Policy Needs in an Era of Sanctions," in Cortright and Lopez, eds., Economic Sanctions, p. 202; and Jonathan Kirshner, Currency and Coercion: The Political Economy of International Monetary Power (Princeton, N.J.: Princeton University Press, 1995), p. 166.
7. Gary Clyde Hufbauer and Jeffrey J. Schott, assisted by Kimberly Ann Elliot (hereafter HSE), Economic Sanctions Reconsidered: History and Current Policy (Washington, D.C.: Institute for International Economics [IIE], 1985); and HSE, Economic Sanctions Reconsidered: History and Current Policy, 2nd ed., 2 vols. (Washington, D.C.: IIE, 1990). All page references are to the second edition.
8. Hufbauer, Schott, and Elliot actually count 41 successes because they count U.S. sanctions against Egypt in 1963 as two successes even though the case is entered only once in the database.
9. Baldwin's Economic Statecraft, which set the agenda for the sanctions field during the 1980s, cites the HSE study no fewer than 21 times. In Coercive Cooperation, Martin calls it the "invaluable data set" (p. xi.), while Cortright and Lopez, in Economic Sanctions, the most recent general survey...
This paper addresses the possible endogeneity of income in the gravity model by providing instrumental variables for income. Using these instruments (physical capital, human capital, and labor accumulation rates) in regression equations of the gravity model, it is shown that the effect of income on bilateral trade is highly significant and, in some cases, is not appreciably different from ordinary least squares estimates. The impact on trade of other gravity variables, including dummy variables for membership in various trading blocs, is also examined.
Using a gravity model, we conduct an empirical analysis of the impact of U.S. economic sanctions on U.S. trade with target countries and on third countries. Our findings show that the impact on U.S. trade is very sensitive to how the sanctioned country list is identified and selected. We find no significant impact of U.S. economic sanctions on trade between the United States and countries that are subject to selective sanctions. For only countries subject to comprehensive sanctions have we found a significant reduction in bilateral trade; and these same sanctions increased trade between target countries and the EU or Japan. Using a sample that includes only the formerly planned economies that were long the target of U.S. economic sanctions in recent history, our results show that U.S. economic sanctions have a significant impact on U.S. exports, imports, and total trade with these countries, and these effects have lingered for more than a decade after the Cold War had ended.
Many sources of economic data cover only a limited set of states at any given point in time. Data are often systematically missing for some states over certain time periods. In the context of conflict studies, economic data are frequently unavailable for states involved in conflicts, undermining the ability to draw inferences of linkages between economic and political interactions. For example, simply using available data in a study of trade and conflict and disregarding observations with missing data on economic variables excludes key conflicts such as the Berlin crisis, the Korean War, the Cuban Missile Crisis, and the Gulf War from the sample. A set of procedures are presented to create additional estimates to remedy some of the coverage problems for data on gross domestic product, population, and bilateral trade flows.
With the end of the Cold War, the focus of US foreign policy changed--and so did that of economic sanctions. Partly because of increased cooperation within the UN framework, economic sanctions were imposed so routinely in the early 1990s that scholars called that period the sanctions decade. This proliferation sparked intense debate about the effectiveness of sanctions as a policy tool and moved US sanctions policy to the center of public discourse.
The paper argues for the explicit inclusion in international trade models of goods which cannot be produced in the importing country. Non-competitive goods require a product-requisite factor which is not universally available. International trade in these goods generates much greater per-unit gains from trade than trade in ordinary goods which can be produced in both (all) countries. Omission of these goods from models of international trade leads to the possibility of a gross underestimation of the difference between autarkic and with-trade income levels. The omission of these goods also neglects some dimensions of policy which are important in the real world, such as sanctions.
Currency unions Their dramatic effect on international trade
A gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade. The panel data, bilateral observations for five years during 1970–90 covering 186 countries, includes 300+ observations in which both countries use the same currency. I find a large positive effect of a currency union on international trade, and a small negative effect of exchange rate volatility, even after controlling for a host of features, including the endogenous nature of the exchange rate regime. These effects, statistically significant, imply that two countries sharing the same currency trade three times as much as they would with different currencies. Currency unions like the European EMU may thus lead to a large increase in international trade, with all that that entails.
— Andrew Rose
Market Structure and Foreign Trade presents a coherent theory of trade in the presence of market structures other than perfect competition. The theory it develops explains trade patterns, especially of industrial countries, and provides an integration between trade and the role of multinational enterprises. Relating current theoretical work to the main body of trade theory, Helpman and Krugman review and restate known results and also offer entirely new material on contestable markets, oligopolies, welfare, and multinational corporations, and new insights on external economies, intermediate inputs, and trade composition.
Label mounted on t.p.: New York, Humanities Press. Thesis--Netherlands School of Economics. Bibliographical footnotes.
An embargo probability leads to private adjustments to curtail consumption and expand production, raising marginal value of consumption less than of production. If there are unemployment or foreign policy externalities, there is an optimal tariff which is proportional to foreign dependence, is inversely proportional to elasticity of external embargo loss, varies directly with embargo probability, and depends more complexly on other parameters. Stockpiling should limit embargo price rise to unit cost of storage divided by embargo frequency. With low embargo frequency, the price rise based on the stockpiling criterion may be greater than with no stockpiling. is then unwarranted.
Measured by the ratio of trade to output, the period 1870-1913 marked the birth of the first era of trade globalization and the period 1914-1939 its death. What caused the boom and bust? We use an augmented gravity model to examine the gold standard, tariffs, and transport costs as determinants of trade. Until 1913 the rise of the gold standard and the fall in transport costs were the main trade-creating forces. As of 1929 the reversal was driven by higher transport costs. In the 1930s the final collapse of the gold standard drove trade volumes even lower. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
International economic sanctions appear to be a common and recurring feature of political interactions between states. In particular, the United States is the country which has most frequently applied negative economic sanctions after World War II. In a parallel way, several measures, imposed by a multilateral organisation like the United Nations have taken place in recent years. This paper provides, through a gravity model approach, an estimation of the impact of economic negative sanctions on international trade. First, the study reports panel gravity estimates of bilateral trade between the U.S. and 49 target countries over the period 1960-2000, inclusive. The results show that extensive and comprehensive sanctions have a large negative impact on bilateral trade, while this is not the case for limited and moderate sanctions. A second estimation focuses on the impact of unilateral U.S. sanctions on bilateral trade volume between target countries and the other G-7 countries over the same period. The results show that unilateral extensive sanctions have a large negative impact, while limited and moderate ones induce a slight positive effect on other G-7 countries bilateral trade. Thus, in the first case the hypothesis of negative 'network effects' is confirmed, while in the latter the sanctions-busting argument should be defended. In both estimations, however, multilateral sanctions demonstrate a large negative impact on trade flows.
This paper derives bilateral trade from two cases of the Heckscher-Ohlin Model, both also representing a variety of other models as well. First is frictionless trade, in which the absence of all impediments to trade in homogeneous products causes producers and consumers to be indifferent among trading partners. Resolving this indifference randomly, expected trade flows correspond exactly to the simple frictionless gravity equation if preferences are identical and homothetic, or if demands are uncorrelated with supplies, and they depart from the gravity equation systematically when there are such correlations. In the second case, countries produce distinct goods, as in the H-O Model with complete specialization or a variety of other models, and preferences are either Cobb-Douglas or CES. Here trade tends to the standard gravity equation with trade declining in distance, with departures from it that depend on relative transport costs. Conclusions are, first, that even a simple gravity equation can be derived from standard trade theories, and second, that because the gravity equation characterizes many models, its use to test any of them is suspect.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
The author's experience with economic sanctions as a tool of international politics is ambivalent. Since opinions pro and contra the effectiveness of sanctions are based on biased selections of case studies, the debate lacks both clarity about how sanctions work and a solid empirical foundation. To alleviate these deficiencies, this paper presents a review of literature and some empirical findings. A reduced-form equation fitted to the data of a recent study by G. C. Hufbauer and J. J. Schott (1985) correctly predicts failure and success in 83 percent out of eighty sanctions in the years 1946-83. Copyright 1989 by WWZ and Helbing & Lichtenhahn Verlag AG
The paper examines the nature of optimal policy intervention required in the exporting country when there is the possibility of a market-disruption-induced trade restriction being invoked by the importing country. The analysis is conducted primarily with a two-period model, with and without adjustment costs, and the results are related to the well-known policy prescriptions of Bhagwati, Ramaswami, Srinivasan, Johnson et al. in the theory of trade and welfare. The last section extends the argument briefly to steady state analysis. The applicability of the analysis to the symmetric, embargo problem is also noted.
This paper presents an AR(1) model in the spirit of Hausman and Taylor zero differences between actual and in-sample predicted trade flows. Large systematic differences between observed and in-sample predicted trade flows only indicate model misspecification and econometric problems. Out-of-sample predictions make sense if countries of interest are in an early stage of the transformation process. The gravity model remains an interesting tool for the calculation of counterfactuals (e.g. the impact of catching up in GDP per capita in the CEEC or of the reduction of trade costs via infrastructure investments or tariffs on bilateral trade, etc.). For this line of research, the difference between short-term and long-term influences could provide interesting insights. Copyright Blackwell Publishers Ltd 2002.
Voluntary export restraint agreements (VERs) have emerged as a popular alternative to traditional protectionist devices, whose use is severely limited by trade agreements. Aimed at ‘disruptive’ suppliers, VERs tend to shift the source of imports away from the most efficient producers. Yet such negotiated agreements are attractive to exporters because they are preferable to the alternative of unilateral import barriers, especially since they allow exporters to control the trade restriction and thereby raise the export price. In fact all effective participants gain from the VER agreement, while consumers and others hurt by it are excluded from the negotiating process. Among the inherent problems of VERs, however, is their tendency to divert exports towards third markets, spreading protectionism worldwide and destabilizing trade relations. Continuing protectionist pressure in such an environment encourages the development of more sophisticated and comprehensive methods of induced export restraint.
Economic Sanctions as a Policy Instrument Stakes and Risks in Economic Sanctions The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical evidence
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Myanmar) 1988-Cameroon
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Burma (Myanmar)
1988-Cameroon
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