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The Effect of Sanctions on U.S. Foreign Direct Investment

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  • Biglaiser, Glen
  • Lektzian, David

Abstract

For years, the United States has imposed economic sanctions to compel countries to alter their behavior. An important concern is whether government sanctions influence private foreign direct investment (FDI) decisions, the largest source of foreign capital. In the first study to assess empirically the relationship between economic sanctions and FDI, we consider whether U.S. sanctions influence U.S. FDI inflows into targeted countries. Using panel data for 171 countries from 1965 to 2000, we find strong evidence that U.S investors pull out of countries targeted for U.S sanctions prior to their imposition. This disinvestment is not permanent and investment tends to return after the sanctions are imposed. The results provide support for FDI studies that show the effect of risk on investor decision making.

Suggested Citation

  • Biglaiser, Glen & Lektzian, David, 2011. "The Effect of Sanctions on U.S. Foreign Direct Investment," International Organization, Cambridge University Press, vol. 65(3), pages 531-551, July.
    • Handle: RePEc:cup:intorg:v:65:y:2011:i:03:p:531-551_00
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    Citations

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    Cited by:

    1. Gutmann, Jerg & Neuenkirch, Matthias & Neumeier, Florian, 2023. "The economic effects of international sanctions: An event study," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1214-1231.
    2. Estrada, Mario Arturo Ruiz & Koutronas, Evangelos, 2022. "The impact of the Russian Aggression against Ukraine on the Russia-EU Trade," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 599-616.
    3. Gutmann, Jerg & Neuenkirch, Matthias & Neumeier, Florian, 2024. "Political economy of international sanctions," ILE Working Paper Series 81, University of Hamburg, Institute of Law and Economics.
    4. Omar, Ayman & Lambe, Brendan John, 2022. "Crude oil pricing and statecraft: Surprising lessons from US economic sanctions," International Review of Financial Analysis, Elsevier, vol. 83(C).
    5. Gutmann, Jerg & Langer, Pascal & Neuenkirch, Matthias, 2024. "International sanctions and emigration," Journal of Economic Behavior & Organization, Elsevier, vol. 226(C).
    6. Jin Mun Jeong & Dursun Peksen, 2019. "Domestic Institutional Constraints, Veto Players, and Sanction Effectiveness," Journal of Conflict Resolution, Peace Science Society (International), vol. 63(1), pages 194-217, January.
    7. Omar, Ayman M.A. & Lambe, Brendan J & Wisniewski, Tomasz Piotr, 2021. "Perceptions of the threat to national security and the stock market," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 504-522.
    8. Zaytsev, Yu. & Loshchenkova, A., 2023. "The impact of sanctions on the activities of Russian companies in the manufacturing sector of the economy in 2014-2021," Journal of the New Economic Association, New Economic Association, vol. 60(3), pages 50-65.
    9. Gabriel Felbermayr & Erdal Yalcin & Philipp Grübener, 2014. "Ökonomische Aspekte des Russlandkonfliktes: Ursachen, Kosten, Optionen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 67(14), pages 35-43, July.
    10. Anirudh Shingal, 2023. "Sanctions and services trade: the neglected dimension," RSCAS Working Papers 2023/39, European University Institute.
    11. Simon J. Evenett & Niccolò Pisani, 2023. "Geopolitics, conflict, and decoupling: evidence of Western divestment from Russia during 2022," Journal of International Business Policy, Palgrave Macmillan, vol. 6(4), pages 511-540, December.
    12. David S Siroky & Milos Popovic & Nikola Mirilovic, 2021. "Unilateral secession, international recognition, and great power contestation," Journal of Peace Research, Peace Research Institute Oslo, vol. 58(5), pages 1049-1067, September.
    13. Patrick Maximilian Weber & Beata Stępień, 2020. "Conform or challenge? Adjustment strategies of sanction‐torn companies," The World Economy, Wiley Blackwell, vol. 43(11), pages 3006-3024, November.
    14. Weber, Patrick M. & Schneider, Gerald, 2020. "How many hands to make sanctions work? Comparing EU and US sanctioning efforts," European Economic Review, Elsevier, vol. 130(C).
    15. Shchepeleva, Maria & Stolbov, Mikhail & Weill, Laurent, 2024. "Do sanctions trigger financial crises?," Finance Research Letters, Elsevier, vol. 64(C).
    16. Mirkina, Irina, 2018. "FDI and sanctions: An empirical analysis of short- and long-run effects," European Journal of Political Economy, Elsevier, vol. 54(C), pages 198-225.

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