The Ripple Effect of Sanctions: Exploring the Impact on Global Value Chains Using a Gravity Model

The article explores and quantifies the intertwined relationship between trade sanctions, Global Value Chains (GVC) participation and revealed comparative advantage (RCA). It presents an original theoretical framework exploring the interaction between sanctions, RCA, and GVC. The empirical exercise adopts an estimation strategy underpinned by a multi-country and multi-sector gravity model exploiting the OECD-Trade in Value Added (TiVA) and the Global Sanctions Data Base (GSDB). The analysis is based on a purpose-built dataset covering GVC participation indexes on 66 origin and destination countries for 23 sectors over the period 1995 and 2018. The analysis fills an important gap in the literature, focused solely on the relationship between GVC and RCA, on the one hand, and trade sanctions and GVC, on the other. We find that the effects of sanctions differ from the buyer (backward) and seller (forward) perspectives; that the RCA in a specific country-sector pair plays a key role in driving sanctions' negative impact, and finally that the level of heterogeneity of the impact is such that only a fine-grained analyses of each sector vis-a-vis its RCA stance could paint the full picture of this complex phenomenon.