Why do economic sanctions sometimes succeed, but often fail, to produce a policy change? The authors argue that the effect of economic punishment is conditional on a state's political institutions. In all cases, the key to sanctions success is to generate political costs for the target regime's winning coalition. However, because of different institutional incentives, economically punishing sanctions are less likely to succeed against a nondemocratic target than against a democratic target. Sanctions increase rents. This benefits nondemocratic leaders more than democratic ones. Also, nondemocratic leaders have smaller winning coalitions, so their core constituents suffer less from sanctions than democratic leaders. Additionally, the authors' strategic argument leads to novel hypotheses regarding the initiation of sanctions. They test hypotheses from their political cost argument against all dyadic sanctions cases between 1948 and 1990, using two different dependent variables and a censored selection estimator to take into account the strategic nature of sanctioning.

This article argues that the influence of democratic institutions in international relations extends beyond the military realm and into the economic. The authors extend Bueno de Mesquita et al.'s institutional theory of political regimes to explain the use and variety of economic sanctions in world politics. It is argued that democracies impose sanctions more often than other regime types because they encompass a greater variety of interest groups. Yet, institutional incentives for successful foreign policies lead democracies to prefer sanctioning non-democracies instead of democracies. The pacifying influence of jointly democratic regimes, then, extends into the economic realm. Further, these same institutional incentives account for variation across regime types in the choice of sanctions used and the goals pursued. Owing to incentives to minimize harm to their public and achieve successful foreign policies, democratic regimes are more likely than non-democracies to impose financial sanctions and pursue minor foreign policy goals. The authors use the Hufbauer, Schott & Elliott sanctions dataset to empirically evaluate each hypothesis. The empirical analysis supports the argument that domestic political institutions affect the incentives of leaders and, therefore, the foreign policies of states.

Economic sanctions are frequently used as a tool of foreign policy, described by some as falling between diplomacy and military force. An important question regarding the use of sanctions is whether they can function as an alternative to military force by demonstrating the sender's resolve and making military force unnecessary, or if their use tends to result in an increased probability that military force will be used. Based on a theory of sanctions as costly signals, the authors develop and test hypotheses regarding the relationship between sanctions and military force. The results show that after a sanction occurs, there is a significantly increased probability of a use of military force. Democracies, because of their propensity to tie their hands with audience costs, while at the same time facing domestic pressure to devise sanctions to be costless to the sender, are highly likely to be involved in a militarized dispute after using sanctions.

For years, the United States has imposed economic sanctions to compel countries to alter their behavior. An important concern is whether government sanctions influence private foreign direct investment (FDI) decisions, the largest source of foreign capital. In the first study to assess empirically the relationship between economic sanctions and FDI, we consider whether U.S. sanctions influence U.S. FDI inflows into targeted countries. Using panel data for 171 countries from 1965 to 2000, we find strong evidence that U.S investors pull out of countries targeted for U.S sanctions prior to their imposition. This disinvestment is not permanent and investment tends to return after the sanctions are imposed. The results provide support for FDI studies that show the effect of risk on investor decision making.

Complementing the effectiveness of US sanctions debate, the US government often prods US investors to disinvest from targeted countries, hoping to pressure sanctioned countries to back US foreign policy goals or face economic costs for their actions. Missing from the effectiveness of sanctions debate is the impact US sanctions have on third-party foreign direct investment (FDI). Using panel data for 171 countries from 1969 to 2000, we present the first empirical study on the effect of sanctions on global FDI. We find strong evidence that when US firms disinvest during US sanctions, global FDI significantly increases, providing the target country with a reliable source of capital replacement. The results suggest the limited effectiveness of sanctions for restricting capital flows to targeted countries and that US firms may ultimately bear the highest costs from US-imposed sanctions.