The interplay between economic sanctions and private sector performance

Abstract

The policy of economic sanctions continues to be an important one in the realms of diplomacy and global policy. Though sanctions are typically intended to reduce the willingness of target nations to continue certain behavior, it is possible that the effects of the sanctions can differ, influencing private sector actors in the country to a greater extent than the policymakers. This paper explores the practical and theoretical implications for the firm in a target country. With its focus, the essay contributes to the scholarly conversation, albeit indirectly, on the effects of economic sanctions. As more firms are willing to use sanctions as a competitive tool, they must understand the broader dynamics of sanctions. Even when sanctions are 'smart' or so-called 'surgical' measures against elites, they will often be able, as critics and global policy actors say, to reduce the ability of the private sector by condemning an entire economy. The paper argues that using insights from a new trade theory, sanction targeting considerations are prominent for multinational managers who may purchase inputs in the targeted country. Thus, trade may mitigate policy effectiveness. These improving metrics lend further support to the argument that some private sectors may dislike sanctions, but inference trees yield a more ambiguous result about which foreign direct investors will still view the sanction target favorably despite the results.