Economic and Political Issues of Economic Sanctions

Clément Montes

clement.montes@ensae.fr | Website

My PhD focuses on so-called smart economic sanctions that specifically target firms. Based on the typology of sanctions proposed by the Global Sanction DataBase (GSDB)¹, which records measures adopted worldwide, this type of instrument has been widely used over the past decade. However, existing databases do not provide detailed information about targets² within a country. This limitation makes it difficult to assess the impact of sanctions, since the sector of activity and the characteristics of targeted firms are not precisely known.

I have therefore built a new database listing firms specifically sanctioned by the European Union (EU). Initially, this database—named the Firm Sanction DataBase (FSDB)—enhances the list available on the EU website by adding variables such as the location of entities and the timeline of sanctions (e.g. threat, start, pause, end of the sanction). By aggregating information from the FSDB, the main trends observed in the GSDB can be replicated. These new data highlight three recurring biases in estimating the impact of economic sanctions:

1. Assuming that all entities targeted by a country sanction are located within that country leads to a misclassification of around 23% of entities listed in the FSDB. This assumption, often made in the literature due to data limitations, can therefore bias analyses.
2. Ignoring sanction programs whose names do not correspond to a country excludes 21% of the FSDB. For instance, programs related to cybersecurity, human rights, or terrorism cannot be directly linked to a specific country, and are therefore often omitted. However, these programs also affect firms located in the EU’s usual target countries.
3. Assuming that firms learn about their sanction on the day it takes effect neglects strategic anticipation. In reality, the time gap between the threat of a sanction and its implementation averages two months, and can reach one year. This is even more pronounced in the case of secondary sanctions: if a firm anticipates being sanctioned once one of its trading partners is targeted, the anticipation period averages one and a half years, and can extend up to twelve years.

In a second step, the FSDB expands the public list of 1,900 currently sanctioned firms by adding about 1,500 additional entities, identified in EU archives, whose sanctions have since been lifted. The FSDB also records the justifications associated with both the imposition and removal of sanctions for each entity. These variables make it possible to analyze the political motivations underlying each sanction regime.

The analysis of the wording used in the documents justifying the removal of sanctions for the 1,500 delisted entities shows that such removal reflects, to some extent, the success of the coercion exerted on the target. The withdrawal of a firm from a sanctions program thus indicates an improvement in the political outcomes of the corresponding program at the macroeconomic level.

The FSDB allows for the analysis of the share of firms removed from each program, which can be interpreted as an indicator of the degree of success of sanctions. The graph highlights that some political objectives—such as defending human rights or combating terrorism—appear to yield more significant political results than those aiming to contain armed conflicts or protect European cybersecurity.