Sanctions and services trade : the neglected dimension

Abstract

Existing literature focuses on the effect of sanctions on merchandise trade and investment, neglecting the services trade dimension. We contribute by using the recent Global Sanctions Database (Felbermayr et al. 2020a,b) to examine the impact of sanctions on bilateral services trade in a structural gravity framework. Our results reveal considerable heterogeneity in sanctions-impact across sectors and depending upon sanctions-type. Trade sanctions are found to reduce sender-target services trade while military, financial and travel sanctions are found to enhance it. This positive effect contrasts with the largely insignificant effect of non-trade sanctions on merchandise trade in the literature and is driven by insurance, financial, ICT, business and maintenance and repair services. Our findings allude to the use of specific services to counter adverse effects of sanctions imposition or for sanctions-busting, suggesting a review of the instrument’s design, coverage and implementation to meet intended objectives.