Economic Insecurity: Trade Dependencies and Their Weaponization in History

Martin Bernstein, Josefin Meyer, Kevin O’Rourke and Moritz Schularick

No 2148, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

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.

Keywords: Trade sanctions; trade dependencies; financial sanctions; effects of sanctions (search for similar items in EconPapers)
JEL-codes: F13 F14 F41 F51 (search for similar items in EconPapers)
Pages: 37 p.
Date: 2025
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