The impact of economic sanctions on international trade : how do threatened sanctions compare with imposed sanctions?

Abstract

In this paper, we draw on established theoretical works in international political economy to compare the empirical impact of the threat of economic sanctions to the actual imposition of economic sanctions on international trade. Deepening the analysis, we analyze whether there are any differential effects when different instruments are employed. We also examine the international trade effect of sanctions at a more disaggregated products level. Thus, we are able to test whether sanctions have any adverse effect on essential commodities such as food and medical supplies in contravention of the Geneva Convention which stipulates the passage of such essential goods even in times of sanction. To achieve this, we use the gravity model as our empirical tool and recent detailed disaggregated data on sanctions spanning a long time series from 1960 to 2009. Our results show the impact of threatened sanctions differs qualitatively and quantitatively from imposed sanctions. Whereas imposed sanctions lead to a decrease in the trade flow between the sender and the target, a threat of sanctions leads to an increase in the trade flow. The positive impact of the threat may be due to economic agents in both the sender and its target resorting to stockpiling prior to the actual imposition of sanctions to minimize any adverse consequences of the sanctions. In addition, we find varying effects for the different sanction instruments. Also, the detrimental effect of sanctions extends to essential products.