On the design of effective sanctions: the case of bans on exports to Russia

Abstract

Abstract We build on Baqaee and Farhi (2019, 2021) and derive a theoretically grounded criterion that allows targeting bans on exports to a sanctioned country at the level of ∼5,000 six-digit HS products. The criterion implies that the costs to the sanctioned country are highly convex in the market share of the sanctioning parties. Hence, there are large benefits from coordinating export bans among a broad coalition of countries. Applying our results to Russia reveals that sanctions imposed by the European Union and the United States in response to Russia’s invasion of Ukraine are not systematically related to our arguments once we condition on Russia’s total imports of a product from participating countries. We discuss drivers of these differences and then provide a quantitative evaluation of the export bans to show that (i) they are very effective with the welfare loss typically ∼100 times larger for Russia than for the sanctioners; (ii) improved coordination of the sanctions and targeting sanctions based on our criterion allows to increase the costs to Russia by about 80% with little to no extra cost to the sanctioners; and (iii) there is scope for increasing the cost to Russia further by expanding the set of sanctioned products.