Investment, Opportunity, and Risk: Do US Sanctions Deter or Encourage Global Investment?

David Lektzian, Glen Biglaiser

Research output: Contribution to journalArticlepeer-review

28 Scopus citations

Abstract

Complementing the effectiveness of US sanctions debate, the US government often prods US investors to disinvest from targeted countries, hoping to pressure sanctioned countries to back US foreign policy goals or face economic costs for their actions. Missing from the effectiveness of sanctions debate is the impact US sanctions have on third-party foreign direct investment (FDI). Using panel data for 171 countries from 1969 to 2000, we present the first empirical study on the effect of sanctions on global FDI. We find strong evidence that when US firms disinvest during US sanctions, global FDI significantly increases, providing the target country with a reliable source of capital replacement. The results suggest the limited effectiveness of sanctions for restricting capital flows to targeted countries and that US firms may ultimately bear the highest costs from US-imposed sanctions.

Original languageEnglish
Pages (from-to)65-78
Number of pages14
JournalInternational Studies Quarterly
Volume57
Issue number1
DOIs
StatePublished - Mar 2013

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