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FDI and sanctions: An empirical analysis of short- and long-run effects

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  • Mirkina, Irina

Abstract

Although the relationship between trade and the success of international sanctions has been a topic of many debates in political economy over the past 30 years, the effect of sanctions on foreign direct investment (FDI) is still largely unexplored. Using the data for 184 countries from 1970 to 2010 and bias-corrected estimators, this study tests the effect of sanction imposition on foreign investment. I find that the effect of sanctions on foreign investment indeed changes over time, depending on sanction costs, primary sanction imposer, and decade. High-cost sanctions lead to a significant decrease in FDI in the short run, although they do not have a long-run effect. In many sanctions episodes in the 1990s, FDI has been negatively affected in the short run, although this effect has partially dissipated in the long run. Sanctions episodes from other decades, on average, did not have a significant effect on foreign investment.

Suggested Citation

  • Mirkina, Irina, 2018. "FDI and sanctions: An empirical analysis of short- and long-run effects," European Journal of Political Economy, Elsevier, vol. 54(C), pages 198-225.
    • Handle: RePEc:eee:poleco:v:54:y:2018:i:c:p:198-225
    DOI: 10.1016/j.ejpoleco.2018.05.008
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    2. Moghaddasi Kelishomi, Ali & Nisticò, Roberto, 2022. "Employment effects of economic sanctions in Iran," World Development, Elsevier, vol. 151(C).
    3. Mike W. Peng & Joyce C. Wang & Nishant Kathuria & Jia Shen & Miranda J. Welbourne Eleazar, 2023. "Toward an institution-based paradigm," Asia Pacific Journal of Management, Springer, vol. 40(2), pages 353-382, June.
    4. Gutmann, Jerg & Neuenkirch, Matthias & Neumeier, Florian, 2023. "The economic effects of international sanctions: An event study," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1214-1231.
    5. Simon Hartmann & Thomas Lindner & Jakob Müllner & Jonas Puck, 2022. "Beyond the nation-state: Anchoring supranational institutions in international business research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(6), pages 1282-1306, August.
    6. Gutmann, Jerg & Neuenkirch, Matthias & Neumeier, Florian, 2024. "Political economy of international sanctions," ILE Working Paper Series 81, University of Hamburg, Institute of Law and Economics.
    7. Kelishomi, Ali Moghaddasi & Nisticò, Roberto, 2024. "Economic sanctions and informal employment," Labour Economics, Elsevier, vol. 89(C).
    8. Farzanegan, Mohammad Reza & Gutmann, Jerg, 2024. "International Sanctions and Internal Conflict: The Case of Iran," ILE Working Paper Series 82, University of Hamburg, Institute of Law and Economics.
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    10. Barseghyan, Gayane, 2019. "Sanctions and counter-sanctions : What did they do?," BOFIT Discussion Papers 24/2019, Bank of Finland, Institute for Economies in Transition.
    11. Kiryl Rudy, 2024. "Political Effects on FDI in the CEE Region: Two Cases of Connectivity and Decoupling from the West," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 16(2), pages 149-167, May.
    12. Hyejin Kim & Jungmin Lee, 2021. "The Economic Costs of Diplomatic Conflict: Evidence from the South Korea–China THAAD Dispute," Korean Economic Review, Korean Economic Association, vol. 37, pages 225-262.
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    15. Anirudh Shingal, 2023. "Sanctions and services trade: the neglected dimension," RSCAS Working Papers 2023/39, European University Institute.
    16. Hatipoglu, Emre & Soytas, Mehmet Ali & Belaïd, Fateh, 2023. "Environmental consequences of geopolitical crises: The case of economic sanctions and emissions," Resources Policy, Elsevier, vol. 85(PB).
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    18. Gurova, Irina (Гурова, Ирина), 2019. "Determinants of Foreign Direct Investment in Russia: Empirical Study [Факторы Прямых Иностранных Инвестиций В России: Эмпирическое Исследование]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 36-61, December.
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    More about this item

    Keywords

    Economic sanctions; Coercion; Foreign direct investment; Common correlated effects estimator; Synthetic controls method;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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