The Effects of International Sanctions on External Debt

Atakan Durmaz, Ömer Akkuş

Abstract


International sanctions seem to be a joint and repetitive feature of economic and political interactions between multinational organizations and states and state with each other. At this point, several measures imposed by multinational organizations like EU and the United Nations have taken place in recent years. In a similar way, the United States draws attention to the negative economic sanctions and imposes on different countries at different times after World War II. This has led to sanctions becoming the focus of many academic studies. According to some studies, the political effects of sanctions on the target state can sometimes deviate from their aims and increase political resistance to the demands of the sanctioners as sanctions may bring about very serious damage to the economies of target states. On the other hand, some studies indicate that the sanctions imposed on investments initially increase the rate of return to capital in the target country, but then decrease new capital inflows. In addition to these studies, researches on the role of political regime (especially democratic and non-democratic) in determining the sanctions and in the effective implementation of sanctions are included in the related literature.

In this paper, we empirically asses how international sanctions imposed by EU, the United Nations and the United States affect external debt of less developed countries or/and developing countries. Our sample includes 44 countries experienced international sanctions over the period 1976-2014. Regardless of political regime, model results indicate that international sanctions have a statistically significant influence on the external debt and increased the external debt of the target countries.

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