International Sanctions and Corruption

A major concern about the imposition of international sanctions is that they may permanently deteriorate the quality of institutions in target countries, potentially causing an increase in corruption. While case studies suggest that this is frequently the case, systematic evidence is so far missing. We provide the first cross-country statistical analysis of the impact of sanctions on public-sector corruption. Using a panel difference-in-differences model and an event study approach, we analyze sanctions against 125 countries from 1971 to 2019. Our results show that Western (and UN) sanctions cause a significant decline of corruption in democracies, while non-Western sanctions and those targeting autocracies have no systematic impact. Event study estimates time the reductions in corruption at about three to four years into the sanctions episode. They persist throughout the sanctions period, but once sanctions are lifted, corruption levels revert to their pre-treatment baseline, indicating that the corruption-reducing effect is limited to the duration of the sanctions episode. Further analysis reveals that the effect is stronger when sanctions explicitly target democratization or human rights improvements.