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The Political Economy of Economic Sanctions

In: Handbook of Defense Economics


  • Kaempfer, William H.
  • Lowenberg, Anton D.


International economic sanctions have become increasingly important as alternatives to military conflict since the end of the Cold War. This chapter surveys various approaches to the study of economic sanctions in both the economics and international relations literatures. Sanctions may be imposed not to bring about maximum economic damage to the target, but for expressive or demonstrative purposes. Moreover, the political effects of sanctions on the target nation are sometimes perverse, generating increased levels of political resistance to the sanctioners' demands. The economic impacts of trade sanctions on the target country are reflected in their terms-of-trade effects, which are larger in the case of multilateral sanctions than unilateral. Investment sanctions initially raise the rate of return to capital in the target country, but eventually the decrease in the inflow of new capital from abroad constrains the target's growth. Using an interest group model of endogenous policy, the level of sanctions imposed is shown to depend on the relative influences of competing interest groups within the sanctioning country. In the target country, normally only those sanctions that have differential effects on supporters and opponents of the ruling regime will induce the regime to alter its objectionable policy. Game-theoretic models suggest that the success of sanctions depends on conflict expectations and levels of commitment. Many sanctions strategies end at the threat stage, without sanctions being implemented. Consequently, empirical studies using data on actually applied sanctions may exhibit selection bias. In general, the processes generating sanctions and the processes determining their outcome are intrinsically linked. Empirical work on sanctions has attempted to address this problem through the use of simultaneous equations methods. The empirical literature has also investigated the role of political regime type, specifically, democracy or the absence thereof, in determining nations' proclivities to impose sanctions and the success of the sanctions.

Suggested Citation

  • Kaempfer, William H. & Lowenberg, Anton D., 2007. "The Political Economy of Economic Sanctions," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 2, chapter 27, pages 867-911, Elsevier.
  • Handle: RePEc:eee:hdechp:2-27

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    Defense in a Globalized World;

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War


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