International Political Economy and Economic Sanctions

The chapter generally examines the evolving structure of the modern international economic system and foreign exchange markets and some of the main economic theories which have driven its development and the implications for public policy regarding the application of economic sanctions. The chapter argues that the design of economic sanctions instruments has been influenced primarily by unrealistic political demands and inflexible legal doctrines which have undermined their effectiveness in state practice. Policymakers have failed to take adequately into account the relevant economic principles that drive the international financial and trading system. The chapter suggests that the comparative advantage of states in particular market sectors significantly enhances their ability to impose effective economic sanctions for those sectors. For instance, states with a relatively large share of the world’s exports of investment capital and financial services should be much more effective in applying controls on these sectors than states with relatively undeveloped financial and investment markets. A state’s utilization of economic sanctions in market sectors where it has a comparative advantage will enhance the efficacy of its sanctions programme and thereby be more likely to achieve public policy objectives.