Sanctions in directed trade networks

Abstract

We model three factors that affect effectiveness of trade sanctions: a country's endowment, distance between countries, and network connectivity. Our model explains several empirical observations: (i) sanctions impose costs on both sender and target; (ii) sanctions are often unsuccessful; and (iii) import sanctions, and export plus import sanctions, are more effective than export sanctions alone. We also offer extensions of our benchmark including retaliation by target, incentives of the third country to participate in multilateral sanctions or sanction-busting, and the consequences of different centralities of sender and target in a trade network.