economic sanctions

From The New Palgrave Dictionary of Economics, Second Edition, 2008
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Abstract

Economic sanctions are tools of statecraft used to achieve a broad range of foreign policy goals by threat or deployment of coercive measures such as trade embargoes, asset freezes, or withholding of development aid. Throughout the post-war era, the United States and other countries frequently have imposed economic sanctions, even though they have contributed only infrequently to foreign policy successes. Globalization has made the exercise of economic coercion increasingly complex, but has not obviated the utility of sanctions as part of the foreign policy arsenal.
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Article

Economic sanctions are tools of statecraft used to influence the behaviour of foreign countries by the threat or actual withdrawal of trade and sources of finance. Traditional means of coercion include trade embargoes, withholding development assistance, and asset freezes. The objective is to confront a foreign country with a choice: either bear the cost of lost trade and finance, or change policies to comply with the demands of those imposing the sanctions (the sender countries). Projecting power through economic coercion is deemed more forceful than diplomatic reproach yet less drastic than military intervention. In practice, economic measures generally are deployed as part of a broader programme of foreign policy responses encompassing diplomatic entreaties, covert or quasi-military intrusions, and threat of or preparation for military action.
Countries impose sanctions in pursuit of a variety of foreign policy goals. Historically, economic sanctions have preceded and then accompanied military conflict. The oil embargo of Japan was a prelude to the Second World War in the Pacific; so, too, were the United Nations’ sanctions against Iraq following its invasion of Kuwait in 1990. Obviously, sanctions are part and parcel of ‘hot wars’ that sever economic ties between the combatants; but they are also prevalent in ‘cold war’ episodes, where the goal is to impair military capabilities through denial of weapons and dual-use technologies (for example, post-war sanctions against the Soviet Union and its satellites under the auspices of the Consultative Group and Coordinating Committee for Multilateral Export Controls, or CoCom, and efforts to blunt the development of nuclear weapons in Iran and North Korea). In addition, sanctions have sought to impede or reverse military incursions across borders (for example, the League of Nations effort to get Italy to withdraw from Abyssinia in 1936) and between warring factions within a country (the sad recent history of several West African states).
Not all sanctions episodes respond to or presage military actions. Many post-war cases have been advanced to counter other types of aberrant behaviour such as state sponsored terrorism, proliferation of weapons of mass destruction, or human rights abuses. In these cases, sender countries impose sanctions in an effort to redress foreign outrages, to deter emulation by others (the rationale in most anti-proliferation cases), and to punish the target regime for its misdeeds (for example, the US grain embargo after the Soviet invasion of Afghanistan in 1989). In a number of cases, sanctions pursue the goal of regime change sotto voce – whether the target is Moammar Gaddafi in Libya, Kim Jong-il in North Korea, or the Afrikaaners in South Africa. Sanctions that portend regime change obviously meet stauncher resistance than those that seek narrow changes in governance by the target government.
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Do sanctions ‘work’?

Foreign policy ventures seldom yield unambiguous results. Gauging the effectiveness of sanctions involves a combination of quantitative method and intuition, and often requires subjective evaluation of incomplete results. Sanctions alone seldom are sufficient to change foreign practices, but they can contribute to the achievement of policy goals in conjunction with other instruments of statecraft, if properly designed and implemented. That is easier said than done.
Sanctions are blunt policy instruments; they are better at impairing economic performance over time than at inflicting surgical strikes on target countries. Senders that expect immediate gratification often tire of the effort, especially if the sanctions impose significant costs on their own firms and workers. Moreover, when sanctions are hard hitting, it is difficult to avoid innocent victims within the target country and in neighbouring states; in such cases, the debilitating effect of sanctions often results in substantial suffering among the civilian population. Humanitarian exemptions from the sanctions designed to soften the blow to the general public invariably weaken the economic impact of the sanctions and muddy the policy signal to the target regime. To be sure, such loopholes in the sanctions net are important both on moral grounds and to maintain the cohesion of the coalition of sender countries, but the loopholes are prone to abuse (witness the scandalous operation of the United Nations’ oil-for-food programme, which was supposed to channel Iraqi oil export revenues to humanitarian assistance) and reduce the economic pressure to comply with the sender's demands.
Almost all sanctions leak; targeted countries can evade the full thrust of the economic restrictions by redirecting trade and finance to non-sanctioning states or by engaging in clandestine operations. Countries seeking economic or political influence with the target regime often conspire to evade the sanctions; the Cold War period was replete with examples of ‘Black Knight’ countries coming to the rescue of targeted regimes with aid to offset the impact of sanctions imposed by the United States or the Soviet Union. Smugglers still outwit even the most comprehensive embargoes – witness the billions of dollars earned by Saddam Hussein, the former Iraqi president, from illicit oil exports during the period of ‘comprehensive’ UN sanctions against Iraq. For a price, targeted regimes can still procure goods, services and technologies; the profit motive seems to be an irresistible force regardless of region or culture!
That said, sanctions have contributed to a few notable successes in the post-war era, including the collapse of the apartheid regime in South Africa and the renunciation of terrorism by President Gaddafi in Libya. Hufbauer et al. (2007) found success – measured by the partial fulfillment or better of policy goals – in more than a quarter of the almost 200 sanctions episodes documented in the 20th century. (The third edition of this comprehensive study of economic sanctions contains updated policy analysis and case studies, and an extensive bibliography. See also Baldwin, 1985, for an examination of the tools of economic statecraft, and Martin, 1992, for analysis of the use of multilateral economic sanctions.) Most of these cases, however, involved relatively modest demands on the target country. When the stakes are high, resistance by the target regime stiffens. Accordingly, most high-profile sanctions cases – like those seeking to oust President Castro in Cuba or to deter support for terrorism and the development of nuclear weapons by the ayatollahs in Iran – have been abject failures.
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Can sanctions be effective in an era of rampant globalization?

Economic sanctions traditionally have been the domain of big powers, acting unilaterally or as part of a broader international coalition. Until recently, the big powers controlled the trade lanes and purse strings of international commerce, and held a near monopoly on advanced technologies. Since the mid-1980s, however, the success of post-war economic development, spurred in part by the spread of technological innovation, has eroded the franchise of the big powers and created alternative sources of goods, technology and capital for countries targeted by economic sanctions. Simply put, globalization has made it much harder to design an effective sanctions policy.
In addition, global politics are now more complex than in the period of East–West rivalry. Former allies differ regarding strategies and priorities for using sanctions to deal with regional trouble spots. For example, Europe is more vulnerable than the United States to an interruption of energy supplies from the Middle East, and thus is less willing to constrain oilfield development and to take actions that risk political retaliation. Similarly, China and Japan are highly dependent on imported energy and thus sensitive to sanctions against Iran and other oil-producing states.
Globalization also has contributed to the decentralization of power, allowing smaller countries – especially those rich in energy resources – to provide offsetting assistance to blunt the economic impact of sanctions. But the influence of globalization goes beyond the realm of state-to-state intervention; terrorism, for example, now operates in a stateless domain of sleeper cells and territories outside of governmental control linked through informal financial and telecommunications networks. For that reason, sanctions policies increasingly seek to target individuals and corporations as well as governmental bodies, and to favour financial measures to interdict inter-bank electronic transfers in addition to the more traditional controls on trade, investment and development assistance.
In sum, economic sanctions continue to play a major role in international relations. However, the familiar goals of economic coercion now must be pursued through measures adapted to the changing conditions in global markets. The use of economic sanctions needs to be reconsidered and revamped, but not abandoned.
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Bibliography

Baldwin, D.A. 1985. Economic Statecraft. Princeton, NJ: Princeton University Press.

Hufbauer, G.C., Elliott, K., Schott, J.J. and Oegg, B. 2007. Economic Sanctions Reconsidered, 3rd edn. Washington, DC: Peterson Institute for International Economics.

Martin, L.L. 1992. Coercive Cooperation: Explaining Multilateral Economic Sanctions. Princeton, NJ: Princeton University Press.

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How to cite this article

Schott, Jeffrey J. "economic sanctions." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 17 April 2014 <http://www.dictionaryofeconomics.com/article?id=pde2008_E000306> doi:10.1057/9780230226203.0439

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