The Effect of Economic Sanctions on Domestic Production, Trade and Transportation of Sanctioned Goods
AbstractIt is well established that free trade generates larger gains. However, various forms of export control such as tariffs, quotas, taxes, etc. applied by developed and developing countries may substantially reduce gains from international trade. In this paper we apply a unique methodological refinement of the computable general equilibrium (CGE) approach to understand the effect of various types and levels of international sanctions on the severity and dissipation of economic losses over time.
For this purpose, we estimate the direct and indirect effects of differing types and levels of sanctions on the export of restricted goods in targeted economies and the use of international transport using the modified version of the dynamic Global Trade Analysis Project (GTAP) model of global trade. We introduce the substitution between different modes of transport into the dynamic version of the GTAP model using the elasticities and approach developed by Avetisyan et al. (2017). The modal substitution elasticities ranging from of 0.9 to 2.8 generate significant response to changes in the relative price of different modes of goods transport.