The causal effect of economic sanctions on political stability: A two-stage difference-in-differences analysis

Abstract

This study employs the two-stage difference-in-differences (2sDiD) estimator to investigate the causal effect of economic sanctions on political stability. It contributes to existing research by (1) re-evaluating sanctions' impacts on political stability using newly introduced causal inference methods, and (2) distinguishing the effects of sanctions across various political regimes and economic globalisation levels. The article argues that economic sanctions create economic hardships for the target population, leading to public frustration toward their governments, which stimulates political mobilisation and thereby decreases the country's political stability. However, sanctions hurt democracies more than autocracies because autocratic regimes can suppress public dissent through repression and citizens face higher costs for opposition. Moreover, economic globalisation offers targets alternatives to sanctioned products and services, potentially weakening sanctions thus damaging political stability more in low-globalised than in high-globalised countries. Empirical findings from 9230 country-year observations between 1949 and 2022 largely align with the theoretical predictions, showing that economic sanctions undermine the target's political stability, with these destabilising effects contingent upon its political regime and economic globalisation levels.