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The empirical consequences of trade sanctions for directly and indirectly affected countries

Jonas Frank

No 174, FIW Working Paper series from FIW

Abstract: Economic sanctions are a popular diplomatic tool for countries to enforce political demands abroad or to punish non-complying countries. There is an ongoing debate in the literature if this tool is effective in reaching these goals. This paper adds to the literature by treating sanctions like a negative form of trade agreements. In order to quantify the direct effects of sanctions on the trade flows between countries I make use of a gravity equation controlling for country pair, importer-year, and exporter-year fixed effects. The estimates reveal that there is a significant decrease in the value of trade after the introduction of sanctions. In a second step, trade diversion is introduced as a potential instrument for countries to soften the negative impact of sanctions. However, the estimates reveal no evidence for trade diversion.

Keywords: gravity; international trade; trade sanctions (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2017-01
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