Do Sanctions Always Stigmatize? The Effects of Economic Sanctions on Foreign Aid

ABSTRACT

A prevalent view among both scholars and policymakers is that economic sanctions stigmatize and isolate their targets. According to this perspective, the stigma associated with economic sanctions should signal to foreign aid donors that they should be more cautious and restrained in providing assistance to sanctioned states. We test this signaling-based theory via a large-n analysis of the impact that sanctions imposed by the United States and those supported by the United Nations (UN) had on the aid flows of 133 recipient states from 1960–2000. Contrary to expectations, our results indicate that being subject to sanctions supported by the UN does not have a negative effect on target states’ aid flows, and being sanctioned by the United States actually has a positive effect on them. We explore two potential explanations for our puzzling findings based upon donor self-interest and donor altruism via a scoping analysis of eight sanctions cases in which target states received greater than expected aid flows. Our findings suggest that theories based upon donor self-interest represent the most promising explanation for why individual donors may increase their aid to sanctioned states.

KEYWORDS:

• Coercion
• economic sanctions
• economic statecraft
• foreign aid
• signals

Acknowledgments

A previous draft of this paper was presented at the 2013 annual meeting of the International Studies Association in San Francisco, CA. We would like to thank A. Cooper Drury, T. Clifton Morgan, Dan Nexon, and our anonymous reviewers for their suggestions.

Supplementary data

Supplemental data for this article can be accessed on the publisher’s website.

Notes

¹ For example, see Early 2012; Lektzian and Biglaiser 2013.

² Barber’s (1979:382–383) conceptualization of the “tertiary objectives” of economic sanctions is consistent with the view that sanctions can be used to stigmatize their targets.

³ Quoted in Powell (2008).

⁴ With respect to foreign direct investment, Lektzian and Biglaiser (2013) treat economic sanctions as policies that can create both risks and profitable opportunities for foreign investors. In the foreign aid realm, however, there is no profit seeking—leaving only risks.

⁵ Quoted from the OECD’s definitional criteria for what constitutes ODA. All military assistance is explicitly excluded from this definition.

⁶ Our study focuses solely on how economic sanctions affect the aid flows of aid recipients. As such, we exclude countries that were ineligible for or did not receive any aid from our analysis. This limits our findings’ generalizability to some extent, as our use of ODA does not capture all types of aid, and it is notable that many communist countries did not receive ODA.

⁷ Beck and Katz (1995) argue that using OLS with PCSEs is preferable to FLGS estimators when the number of panels is larger than the number of years being observed.

⁸ See Roodman (2012) for why the net aid transfers concept is preferable to using net ODA.

⁹ This includes sanctions episodes that were initiated prior to 1960 and counts sanctions episodes with multiple targets as separate cases (Hufbauer et al. 2007).

¹⁰ We only coded cases of imposed sanctions that were politically motivated and did not solely involve travel bans.

¹¹ The UN sanctions cases did not involve the termination of foreign aid.

¹² We also explored including a lag term in our analysis (see the Web appendix) but deemed it inappropriate for several reasons. First, including a lag has been shown to cause biased coefficient estimates due to unobserved, observation-specific effects in our models (Kristensen and Wawro 2003:1). Second, including the lag term could obscure the effects of sanctions because their prior-year effects would be absorbed into the lag term’s value. This is what we observed when we included the lag, which washed out the sanctions’ effects.

¹³ See the Web appendix for more details.