Economics Dictionary of ArgumentsHome
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| Sanctions consequences: Sanctions consequences in economics are broadly negative for the target country, often leading to reduced GDP growth, lower investment, decreased trade, and increased poverty. They can also trigger financial crises and negatively impact human rights. For the imposing country, consequences can include lost export markets and investment opportunities. See also Sanctions, Sanctions policies, Sanctions theory, Sanctions effectivenss._____________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 Consequences - Dictionary of Arguments
Itskhoki I 9 Sanctions Consequences/Itskhoki/Ribakova: We distinguish between trade and financial sanctions. Standard frameworks for evaluating the gains (and losses) from trade and the optimal tariff literature allow to analyze the trade effects of sanctions. Itskhoki I 10 Financial sanctions operate by limiting the ability of countries to borrow to finance trade deficits, reducing the ability for risk sharing and intertemporal consumption smoothing. Countries that do not rely on international financing of trade flows and export commodities, which can be elastically relocated to different markets, are particularly immune to the effects of sanctions provided many third countries are not part of the sanctioning coalition. Payment Systems: Nonetheless, payment system sanctions may result in significant barriers and disrupt trade flows with third countries. >Sanctions, >Sanctions debate, >Payment systems, >Sanctions effectiveness, >Sanctions evasion, >Sanctions history, >Sanctions policies, >Sanctions theory, >Trade sanctions, >Financial sanctions, >Payment systems. Itskhoki I 19 Financial crisis: Financial crisis may be the immediate goal of steep and swift financial sanctions, as it is significantly less costly to the sender than long-term trade sanctions. However, certain condition must be satisfied for a financial crisis to materialize as a result of sanctions. The crisis is more likely in a country: i) the larger are the current account and government budget deficits; ii) the larger is the external debt; iii) and the greater is the incidence of dollarization in the domestic economy, especially in domestic borrowing and lending. Under these circumstances, a combination of financial sanctions with export restriction has the greatest capacity to inflict a bank run and a financial crisis in the economy. Itskhoki I 20 In particular, this is the case as such sanctions cut off the currency supply to the economy and hence trigger a currency devaluation which puts additional financial stress on a system that uses foreign currency debt. Russia: In the case of Russia, arguably, no conditions for a financial crisis were satisfied. The Russian economy was not dollarized, had little external debt, ran a current account and budget surpluses, and had significant accumulated foreign exchange reserve – the so-called “economic fortress” Russia. This was, in part, due to the earlier financial sanctions imposed in 2014-15 that cut off Russian government from the international financial market. The consequence was that the Bank of Russia could fend off a bank run and prevent a currency crisis by using a range of financial repression measures that were later relaxed. It is, nonetheless, possible that not imposing a swift embargo on the Russian energy exports was a missed opportunity, which could have significantly limited the ability of the government to curb the emerging bank run and currency crisis._____________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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