Economic sanctions are a tool used by political leaders to influence foreign policy. They can involve restrictions on trade, capital flows and the movement of people. These can include embargoes, export restrictions and visa bans on officials, private citizens or their immediate family members. The intent is to punish a nation for its actions or deny it an avenue to carry out objectionable policies and compel the target to change its behavior. Sanctions can also be designed to maintain strategic and technological advantages over rival nations. One example is the CoCom embargo against the Soviet Union, which restricted technology exports in the late 1940s. A more recent example is the US-led semiconductor export controls on China that have been in place since 1996.
However, not all sanctions work. Their impact depends on the level of sophistication and political will of the sanctioning countries, as well as the strength and legitimacy of the targeted government and the nature of the policy objective. Moreover, sanctions can evolve over time. Sanctions imposed to force regime change in Cuba and Venezuela, for instance, may have helped these governments shore up domestic support by giving them an external enemy against which to rally their populations.
While the effectiveness of sanctions is debated, many experts agree that they impose costs on the sanctioning country’s economy. This is especially true when they affect goods, such as weapons and infrastructure equipment. However, these costs can be less pronounced than they appear if the affected goods are redirected to other markets. This suggests that sanctions can have longer-term effects than is suggested by the coefficient estimates (LIM1*2, LIM2*2, and LIM3*3) on GDP.
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