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The empirical consequences of trade sanctions for directly and indirectly affected countries

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  • Jonas Frank

Abstract

Economic sanctions are a popular diplomatic tool for countries to enforce political demands abroad or to punish non-complying countries. There is an ongoing debate in the literature if this tool is effective in reaching these goals. This paper adds to the literature by treating sanctions like a negative form of trade agreements. In order to quantify the direct effects of sanctions on the trade flows between countries I make use of a gravity equation controlling for country pair, importer-year, and exporter-year fixed effects. The estimates reveal that there is a significant decrease in the value of trade after the introduction of sanctions. In a second step, trade diversion is introduced as a potential instrument for countries to soften the negative impact of sanctions. However, the estimates reveal no evidence for trade diversion.

Suggested Citation

  • Jonas Frank, 2017. "The empirical consequences of trade sanctions for directly and indirectly affected countries," FIW Working Paper series 174, FIW.
    • Handle: RePEc:wsr:wpaper:y:2017:i:174
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    Cited by:

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    3. Tyazhelnikov, Vladimir & Romalis, John, 2024. "Russian counter-sanctions and smuggling: Forensics with structural gravity estimation," Journal of International Economics, Elsevier, vol. 152(C).

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    Keywords

    gravity; international trade; trade sanctions;
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