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The sword and the shield: The economics of targeted sanctions

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  • Ahn, Daniel P.
  • Ludema, Rodney D.

Abstract

How effective are “smart” sanctions in imposing costs on an adversary? We consider this question in a model where a targeted regime may choose to “shield” strategically important firms from harm. Using detailed firm and individual data, we estimate the impact on firm performance from smart sanctions deployed by the U.S. and EU against Russia beginning in 2014. We find significant losses in operating revenue, asset values, and employees for sanctioned firms relative to their non-sanctioned peers, which are greater in sectors dependent upon Western service inputs. Strategic firms systemically outperform non-strategic firms under sanctions, implying a cost of shielding to the regime that adds substantially to the total cost of sanctions. (JEL: F5).

Suggested Citation

  • Ahn, Daniel P. & Ludema, Rodney D., 2020. "The sword and the shield: The economics of targeted sanctions," European Economic Review, Elsevier, vol. 130(C).
  • Handle: RePEc:eee:eecrev:v:130:y:2020:i:c:s0014292120302178
    DOI: 10.1016/j.euroecorev.2020.103587
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    Cited by:

    1. Korhonen, I., 2019. "Sanctions and Counter-Sanctions - What Are their Economic Effects in Russia and Elsewhere?," Journal of the New Economic Association, New Economic Association, vol. 43(3), pages 184-190.
    2. Pestova, Anna & Mamonov, Mikhail, 2019. "Should we care? : The economic effects of financial sanctions on the Russian economy," BOFIT Discussion Papers 13/2019, Bank of Finland, Institute for Economies in Transition.
    3. Crozet, Matthieu & Hinz, Julian & Stammann, Amrei & Wanner, Joschka, 2021. "Worth the pain? Firms’ exporting behaviour to countries under sanctions," European Economic Review, Elsevier, vol. 134(C).
    4. Davydov, Denis & Sihvonen, Jukka & Solanko, Laura, 2021. "Who cares about sanctions? Observations from annual reports of European firms," BOFIT Discussion Papers 5/2021, Bank of Finland, Institute for Economies in Transition.
    5. Yulia S. Timofeeva, 2021. "US Sanctions Against Financial Companies: Key Features," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 127006, Russia, issue 4, pages 39-51, August.
    6. Moeeni, Safoura, 2021. "The intergenerational effects of economic sanctions," CLEF Working Paper Series 33, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    7. Ghasseminejad, Saeed & Jahan-Parvar, Mohammad R., 2021. "The impact of financial sanctions: The case of Iran," Journal of Policy Modeling, Elsevier, vol. 43(3), pages 601-621.
    8. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2020. "How do Firms Respond to Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202011250800001118, Iowa State University, Department of Economics.
    9. Gerald Schneider & Patrick M. Weber, 2020. "Biased, But Surprisingly Effective: Economic Coercion afer the Cold War," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 20(04), pages 9-13, January.
    10. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2021. "How do Firms Respond to Long-term Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202106020700001118, Iowa State University, Department of Economics.
    11. Felbermayr, Gabriel & Kirilakha, Aleksandra & Syropoulos, Constantinos & Yalcin, Erdal & Yotov, Yoto V., 2020. "The global sanctions data base," European Economic Review, Elsevier, vol. 129(C).
    12. Dizaji, S.F. & Lis, P. & Murshed, S.M. & Zweiri, M., 2020. "What the political economy literature tells us about blockades and sanctions," ISS Working Papers - General Series 130655, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    13. Iikka Korhonen, 2020. "Economic Sanctions on Russia and Their Effects," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 20(04), pages 19-22, January.
    14. Hufbauer, Gary Clyde & Jung, Euijin, 2020. "What's new in economic sanctions?," European Economic Review, Elsevier, vol. 130(C).

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    More about this item

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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