Adjustment Costs and Sanctions

Abstract

How do economic vulnerabilities shape the severity of sanctions? This dissertation examines how economic adjustment costs—the economic burdens a state incurs when adapting to trade disruptions—shape sanctioning decisions. When ties are severed, both sender and target states experience immediate efficiency losses and long-term adaptation challenges. Existing scholarship largely analyzes sender and target vulnerabilities in isolation—I examine the interaction of mutual economic vulnerabilities. The theory yields four scenarios: when both sender and target states face low adjustment costs, sender states lack leverage and sanctions are predominantly symbolic; when senders face high costs but targets have low vulnerabilities, states impose limited sanctions, con- strained by a comparative damage calculus requiring the sender state to have a relatively favorable cost-benefit calculation over time and institutional capacity to manage the associated costs; when both face high adjustment costs, mutual vulnerability constrains policymakers to limited sanctions; and when senders face minimal costs while targets exhibit significant vulnerabilities, policymakers leverage these asymmetries with severe sanctions. Adjustment costs encompass both exogenous factors—such as geographic distance and resource endowments—and endogenous components— characterized by a state’s attempts to preemptively manage its adjustment costs. The mutual influence between adjustment costs and sanctioning behavior makes it challenging to disentangle causal relationships, which limits the empirical analysis to correlation. I construct a composite measure of adjustment costs incorporating economic complexity, trade elasticity, bilateral trade flows, and trade gravity to predict sanction severity. Chapter 1 analyzes state dyad-year observations (1980-2024) using ordered logistic regressions, linear probability models, and a Bayesian latent variable design. The results suggest that higher sender adjustment costs decrease sanction severity while higher target adjustment costs increase severity. Chapter 2 examines historical and contemporary cases that provide additional support for the empirical findings and illustrate how greater disparities in adjustment costs exacerbate the severity of sanctions. Chapter 3 analyzes EU-Russia natural gas sanctions and demonstrates that states accept temporary costs when these remain manageable in comparison to the long-term costs imposed on targets. This research demonstrates how economic interdependencies simultaneously constrain senders and create vulnerabilities in targets and explains costly sanctions through a comparative damage logic.