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Economic insecurity: Trade dependencies and their weaponization in history

Author

Listed:
  • Bernstein, Martin
  • Meyer, Josefin
  • O'Rourke, Kevin Hjortshøj
  • Schularick, Moritz

Abstract

Do trade dependencies leave countries vulnerable to geopolitical coercion? We study the economic costs of trade and financial sanctions, from 1920 to the present. We first develop a continuous measure of sanction intensity, using bilateral commodity-level data to calculate the importance of specific flows that fall under sanctions. We find that sanctions inflict relatively small costs on average: sanctioning 1% of GDP worth of imports or exports leads to approximately 0.3 percentage points of lost GDP over a 5-year period and a 0.1 percentage point increase in unemployment. However, we show that sanctions are far more costly for countries whose trade is highly concentrated, and for countries that rely heavily on exporting primary commodities. Low income and developing countries appear most vulnerable to trade sanctions, while high income financial centers and some EU countries are among the most exposed to financial sanctions.

Suggested Citation

  • Bernstein, Martin & Meyer, Josefin & O'Rourke, Kevin Hjortshøj & Schularick, Moritz, 2025. "Economic insecurity: Trade dependencies and their weaponization in history," Kiel Working Papers 2295, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:323225
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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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