Economics Dictionary of ArgumentsHome
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| Sanctions evasion: Sanctions evasion in economics refers to the circumvention of economic restrictions (sanctions) imposed by countries or international organizations. This often involves illicit activities like using shell companies, falsifying documents, or employing complex financial structures to hide transactions and allow sanctioned entities to access global markets and resources. It undermines the intended impact of sanctions. See also Sanctions, Sanctions effectiveness, Sanctions theory, Sanctions debate._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Oleg Itskhoki on Sanctions Evasion - Dictionary of Arguments
Itskhoki I 3 Sanctions Evasion/Itskhoki/Ribakova: It is important to clearly distinguish between sanctions "in theory" and sanctions "in practice," with enforcement being the key difference. While sanctions may exist on paper, weak enforcement renders them ineffective. Moreover, "black knights" (Timofeev 2023)(1) have been aiding Russia in circumventing these sanctions, further highlighting the gap between theoretical measures and their practical impact. >Sanctions, >Sanctions consequences, >Sanctions debate, >Sanctions effectiveness, >Sanctions evasion, >Sanctions history, >Sanctions policies, >Sanctions theory, >Trade sanctions, >Financial sanctions. Itskhoki I 13 (…) substitution across external trade partners that leave trade shares unchanged (assuming ε > 1)(*), do not change welfare or allocations. Therefore, it is the aggregate trade share, not bilateral trade shares with specific trade partners, that is generally (but not always) most informative. The ability to substitute goods and input sourcing away from sanctioning coalition to allied and third-world countries grossly limits the effectiveness of sanctions. >Trade sanctions/Itskhoki. Itskhoki I 16 [There is a] role of elasticity of substitution in evaluating the effects of sanctions. >Elasticity. Conventional wisdom and available estimates suggest that this elasticity is much lower in the short run than in the long run (see Ruhl 2008(2), Boehm et al 2023(3)). This is the basis for arguing that sanctions have the largest bite in the short run, especially when they are unanticipated. Pre-announced or anticipated sanctions have smaller bite, offering an opportunity for an early adjustment.** Furthermore, in cases where pre-announced sanctions on future commodity exports have an immediate effect to raise current commodity prices, the policy can backfire altogether. Itskhoki I 17 This was, arguably, in part true in 2022 when the anticipation of sanctions on the Russian energy sector was a contributing factor to the record-high levels of world oil prices, even though the Russian oil supply to the world market never ceased. The experience in 2022 also suggests that a lot of adjustment can happen swiftly, if the sanctions shock is large and significantly moves relative prices. This was true for the adjustment of the Russian economy, that by the end of the year has largely relocated the bulk of its energy supply to China and entirely new customers in India and Turkey, as well as relocated its international import sourcing towards China, as well as via Turkey and former Soviet countries. But it was equally true for the European economy and its substitution away from Russian energy sources that was largely completed by the end of 2022, with Europe bracing for a major recession in 2022 that did not materialize (see Bachmann et al. 2024(4) and the heated debate that surrounded its circulation in 2022 summarized in Moll et al. 2023(5)). *In the formula (1): Gain from trade for country i = 1 − λii 1/ε , (1) where λii is the expenditure share on domestic goods, hence 1−λii is the expenditure share on imports, and ε is the trade elasticity. ** The direct impact of sanctions is further complicated by the ability of countries to trade intertemporally, and in particular by creating stockpiles of most vulnerable inputs. Even sharp but temporary disruptions to trade flows may have little impact if they can be effectively smoothed out over time. This is particularly relevant for certain industries like military production which are the main target of sanctions. 1. Timofeev, Ivan. 2023. “Does Russia Have ‘Black Knights’?” Russian International Affairs Council (blog). March 31, 2023. https://russiancouncil.ru/en/analytics-andcomments/analytics/does-russia-have-black-knights/. 2. Ruhl, Kim J. 2008. “The International Elasticity Puzzle.” New York University Working Papers 08-30. 3. Boehm, Christoph E., Andrei A. Levchenko, and Nitya Pandalai-Nayar. 2023. “The Long and Short (Run) of Trade Elasticities.” American Economic Review 113 (4): 861–905. https://doi.org/10.1257/aer.20210225. 4. Bachmann, Rüdiger, David Baqaee, Christian Bayer, Moritz Kuhn, Andreas Löschel, Benjamin Moll, Andreas Peichl, Karen Pittel, and Moritz Schularick. 2024. “What If? The Macroeconomic and Distributional Effects for Germany of a Stop of Energy Imports from Russia.” Economica 91 (364): 1157–1200. https://doi.org/10.1111/ecca.12546. 5. Moll, Benjamin, Moritz Schularick, and Georg Zachmann. 2023. “The Power of Substitution: The Great German Gas Debate in Retrospect.” Brookings Papers on Economic Activity Fall:395–455._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Itskhoki I Oleg Itskhoki Elina Ribakova The Economics of Sanctions: From Theory Into Practice. Brookings Papers on Economic Activity, Fall 2024. The Brookings Institution 2024 |
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> Counter arguments against Itskhoki
> Counter arguments in relation to Sanctions Evasion
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