Economic coercion and the problem of sanctions-proofing

Menevis Cilizoglu and Navin A Bapat
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Menevis Cilizoglu: St. Olaf College, USA
Navin A Bapat: University of North Carolina–Chapel Hill, USA

Conflict Management and Peace Science, 2020, vol. 37, issue 4, 385-408

Abstract: Although sanctions generate economic costs, target states may “sanctions-proof†their regime by borrowing capital from abroad. While some targets obtain interest-free capital from black knight states, others may need to borrow with interest from international credit markets. These interest rates may sometimes make borrowing cost-prohibitive, giving targets no choice but to acquiesce to the demands of the sender. However, since senders cannot observe if black knight states are assisting target states, targets have an incentive to misrepresent their source of external capital. In an effort to deter sanctions, targets that must borrow at high interest rates may signal that they have black knight support and are sanctions-proofed. We formally and empirically demonstrate that in this uncertain environment, senders are more likely to impose sanctions on targets with low credit ratings, but only do so if the target places a relatively low value on uninterrupted economic transactions with the sender.

Keywords: bargaining; coercion; credit; sanctions (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:sae:compsc:v:37:y:2020:i:4:p:385-408

DOI: 10.1177/0738894218783296

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