Discussion Papers 2021, 30 S.
Sonali Chowdhry, Julian Hinz, Katrin Kamin, Joschka Wanner
2022. Updated Version, February 2023.
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This paper examines the impact of coalitions on the economic costs of the 2012 Iran and 2014 Russia sanctions. By estimating and simulating a quantitative general equilibrium trade model under different coalition setups, we (i) dissect welfare losses for sanctions senders and target; (ii) compare prospective coalition partners and; (iii) provide bounds for the sanctions potential — the maximum welfare change attainable — when sanctions are scaled vertically, i.e. with measures deepening up to an embargo, and horizontally, i.e. with coalitions expanding up to a global regime. To gauge the significance of simulation outcomes, we implement a Bayesian bootstrap procedure that generates confidence bands. Relative to unilateral action, we find that coalitions magnify welfare losses imposed while their impact on domestic welfare loss incurred depends on the design and sectoral dimension of sanctions. Hypothetical cooperation of large developing economies such as China additionally raises the deterrent force of coalitions. Finally, we quantify transfers that equalise welfare losses across coalition members to further demonstrate asymmetries in the relative economic burden of sanctions.
Keywords: Sanctions, embargoes, alliances, sectoral linkages