Technological sanctions and their unintended consequences: Theory and evidence

Yue Li, Xiaoxue Zheng and Chu-Ping Lo

China Economic Review, 2025, vol. 93, issue C

Abstract: We extend Melitz's (2003) model to demonstrate that technology sanctions can lead to unintended economic consequences when targeting countries with substantial technology stocks. Rather than hindering the sanctioned country's technological progress, sanctions may facilitate the emerge of high-productivity domestic firms that outpace international competitors, ultimately boosting the sanctioned country's overall productivity. Our empirical analysis, using the Panel Smooth Transition Regression (PSTR) model, reveals that when a sanctioned country's technology stock reaches approximately 75 % of the sanctioning country's level, the negative impact of sanctions diminishes, potentially resulting in counterproductive outcomes. Additionally, countries with larger populations demonstrate greater resilience to technology sanctions.

Keywords: Technology sanction; Technology diffusion; International trade (search for similar items in EconPapers)
JEL-codes: F10 F51 F68 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:93:y:2025:i:c:s1043951x25001166

DOI: 10.1016/j.chieco.2025.102458

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