International sanctions and development: Evidence from Latin America and the Caribbean (1950–2019)

Abstract

This article examines the impact of international sanctions on the economic development of sanctioned countries in the Latin American and Caribbean regions over seven decades (1950–2019). The estimates arise from a two‐way fixed effects model that combines data from the Global Sanctions Database and the World Development Indicators Database to examine outcomes in terms of economic growth, income inequality, and the incidence and gap of poverty. The findings confirm a significant worsening of development in sanctioned countries. This includes lower growth (−0.6 percentage points) and higher inequality (+1.5 Gini coefficient points). Reduced investment as well as reduced access to credit in the private sector are the mechanisms through which the above effects take place. The results are robust to multiple specifications and have important implications for international sanctions policies. If the sanctioning country seeks to minimise the consequences for the poorest in the sanctioned country, military sanctions appear to be the most appropriate, while if the objective is to maximise these consequences, sanctions on mobility are optimal.