Perverse Trade Sanction Effects

Gabriel Felbermayr, Ohyun Kwon, Constantinos Syropoulos () and Yoto Yotov

No 202615, Working Papers from Center for Global Policy Analysis, LeBow College of Business, Drexel University

Abstract: Using established econometric techniques and disaggregated data that include intra-national trade flows, we estimate the direct and extraterritorial effects of complete trade sanctions on international trade. Across sectors, the direct effects of complete trade sanctions are negative, as expected. However, their extraterritorial effects are predominantly positive, working in the opposite direction of the direct effects. At the extreme, the extraterritorial effects of complete trade sanctions may fully offset their direct effects and lead to a perverse scenario in which the target's overall trade rises in the aftermath of sanctions.

Keywords: Trade sanctions; Trade creation; Trade diversion; Third-country effects; Sanctions busting (search for similar items in EconPapers)
JEL-codes: F10 F14 F51 (search for similar items in EconPapers)
Pages: 11
Date: 2026-08
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Working Paper: Perverse Trade Sanction Effects (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:drx:wpaper:202615

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