Sanctions and economic growth: Do sanction diversity and level of development matter?

Abstract

The application of economic and political sanctions becomes a vital tool of international politics to facilitate peaceful coexistence among the nations. However, the issue of the effectiveness of sanctions in creating adequate disutility to ensure compliance remains contentious. Therefore, this study assesses the effect of sanctions on the economic growth of the target states. It captures the diversity of sanctions using system Generalized Method of Moments (GMM) with extensive dataset for the period 1970–2018. The findings reveal that extensive, multilateral sanctions, and export restriction are the only sanction categories that are effective in creating disutility and reducing the real income per capita growth when targeted at the developed countries. On the other hand, limited sanctions (partial embargo) – sanctions that are targeted at specific sectors, groups, and issues such as withdrawal of foreign aid, as well as import restrictions can effectively reduce income per capita growth when imposed on developing countries while all other categories of sanctions have a positive effect on income growth in targeted developing economy. Therefore, we, conclude that the sanctions diversity, development level of the target country and sender identity play vital roles concerning the sanctions-economic growth nexus. These attributes should be considered in the application and analyses of sanctions to ensure their effectiveness. The study provided several interesting policy insights.