ECONOMIC WARFARENew Study Reveals the Costs of Sanctions
What effect do economic sanctions have on the countries affected, such as Russia or Iran? Economic sanctions can be a double-edged sword. On the one hand, they usually reduce gross domestic product and thus prosperity in the affected countries, as intended. On the other hand, however, they can also have a severe impact on the economies of the sanctioning countries.
Economic sanctions can be a double-edged sword. On the one hand, they usually reduce gross domestic product and thus prosperity in the affected countries, as intended. On the other hand, however, they can also have a severe impact on the economies of the sanctioning countries. However, a skillful selection of the countries involved in the sanctions measures could significantly mitigate these undesirable negative consequences.
These are the key findings of a new study that has now been published in the journal Economic Policy. Economists Sonali Chowdhry (DIW Berlin), Julian Hinz (Bielefeld University & IfW Kiel), Katrin Kamm (IfW Kiel) and Joschka Wanner (University of Würzburg & IfW Kiel) are responsible for the study. The study focuses on the sanctions against Iran in 2012 in response to its nuclear program and against Russia following the violent annexation of Crimea in 2014.
Analyzing Prices, Prosperity and Trade Flows
“In our analyses, we focused on the economic effects of sanctions, for example on prices and prosperity in the target country, as well as on trade flows,” says Joschka Wanner, Junior Professor of Quantitative International and Environmental Economics at Julius-Maximilians-Universität Würzburg (JMU), describing the approach. As a first step, the team analyzed the extent to which these parameters have changed as a result of the sanctions.
In fact, the calculations for Iran show a real decline in gross domestic product of 1.9 per cent as a result of the sanctions. For Russia, the figure is 1.44 per cent - based on the sanctions from 2014. The sanctions following the attack on Ukraine do not yet play a role in this study. “1.4 or 1.9 per cent may not sound like much. However, from an economic perspective, this is a full-blown recession,” says Wanner.
Maximum Sanction Potential Not Reached
The group compared these real developments with the maximum potential of the sanctions under various conditions - either by including more countries in the sanctions or by extending them to all goods. “According to our calculations, in the case of Iran, the current coalition achieves around 39 per cent of what would be possible in terms of a decline in gross domestic product - compared to the case in which all countries participate in the sanctions,” explains Wanner. For Russia, this figure is just under 58 per cent.
