No abstract

In order to explain why successes of economic sanctions predominantly occur in the first two years of a sanction episode, we analyse the dynamic economic and political impact of an economic sanction. Our theoretical analysis of the dynamics of adjustment gives us two important results: firstly, the strongest impact in terms of utility forgone occurs in the initial phase of the sanction episode and, secondly, the long-term gain of compliance decreases during a sanction episode and is lower in the long run than acknowledged by the usual comparative static analysis. On both accounts we expect that sanctions have a higher probability of success in the early phase and a lower probability of success in the long run. Next we build a comprehensive set of vector autoregressive (VAR) models that we apply to the case of a boycott of Iranian oil. An important innovation is that we include both economic and political factors in a VAR model of economic sanctions. Our VAR models find significant impacts of economic sanctions both on key economic variables (government consumption, imports, investment, income) and on two indicators of the political system (the Polity variable that describes shifts in the autocracy-democracy dimension and the Vanhanen Index of Democratization that describes political competition and participation). The impact of an oil boycott on the Iranian economy is considerable: oil and gas rents are important drivers of the Iranian key macroeconomic variables and ultimately of its political system. A reduction of oil and gas rents creates economic costs that act as incentives to move towards a more democratic setting. However, this effect is only significant in the first two years and turns negative after six to seven years, as adjustment of economic structures mitigates the economic and political impact of the sanctions.

This meta‐analysis reviews the intrasector heterogeneity of productivity spillovers from foreign direct investment (FDI) in 31 developing countries through a larger more comprehensive data set. We investigate how the inconsistencies in the reported spillover findings are affected by publication bias, characteristics of the data, estimation techniques, and empirical specification, analyzing 1450 spillover estimates from 69 empirical studies published in 1986–2013. Our findings suggest that reported FDI spillover estimates are affected by publication bias. In combination with model misspecification of the primary studies, the bias overstates the genuine underlying meta‐effect, but the meta‐effect remains economically and statistically significant. Our results emphasize that spillovers and their sign largely depend systematically on specification characteristics of the primary studies and publication bias. Publication bias is not caused by “best practice” choices. Future research needs to cover more developing countries and to investigate not only whether spillovers occur, but also to explore inside the black box of how spillovers actually emerge.

No abstract

We review the literature on economic diplomacy and provide a meta‐analysis of 32 empirical studies published in 1986–2011 that deal with the trade and investment impact of economic diplomacy (embassies, consulates, other diplomatic facilities, investment and export promotion offices, trade and state visits). Controlling for differences in research design, methodology, time frame and manner of data, we find a positive and significant effect of economic diplomacy on international economic flows with the exception of state visits and that this is true in a sample of 627 t‐statistics analysed with OLS and for a larger sample of 963 reported significance levels analysed with logit thus illustrating robustness with respect to sample and estimation technique. Our analyses show that reported effects of economic diplomacy on trade and investment in individual studies are sensitive to model specification. The primary studies that investigate only one source country are less likely to report significant positive effects. Compared to other sciences, economic studies are less likely to report significantly positive effects of economic diplomacy. Primary studies lump embassies and consulates (general) into one indicator miss that these instruments differ significantly. Embassies, consulates and agencies should thus be included as separate instruments in future research.