Limits and Consequences of Deprivation Politics: A Study of Economic Sanctions

• In Event: Poster Session: Comparative Politics I

Abstract

In the past two decades, the dollarization of the global economy and the dominance of the U.S financial institutions accompanied by limited restraints have resulted in the imposition of various financial and trade sanction programs toward many countries, ranging from China and Russia to Turkey, Nicaragua, and Myanmar. Remarkably, while the U.S. has rapidly expanded and “modernized” economic statecraft, the available data, and theoretical knowledge lag in explaining how regressive sanctions reconstruct the political economy, from the global to the local. In this regard, this research seeks to understand the political economy of the sanctioned countries, and particularly compare current and past cases of broadly-sanctioned ones.
In a cross-national study, the paper examines the impacts of isolation, as opposed to integration, and investigates how the imposed constraints of sanctions (re)calibrate fiscal capacity, and consequently the welfare state, particularly public spending in health, education, and housing sectors. Contrary to previous studies, this paper categorizes various sanctioning programs and compares domestic affairs in Iran, Venezuela, Cuba, and Syria. The working hypothesis considers the decline/loss of the welfare state as the primary outcome of sanctions.
The paper conducts a two-stage cross-national time series and regression discontinuity analysis in the time of the imposition of sanctions as follows:
Sanctions  Fiscal Capacity  Welfare State
The first stage aims to understand how different components of sanction programs target export revenues, import revenues, and available foreign assets, as the independent variables impact state capacity as the dependent variable. As Besley and Perrson (2011) explain, political and economic institutions to extract and distribute resources do not experience dramatic changes in the short run. Thus, I argue that when sanctions are imposed, they specifically impact the state’s fiscal capacity through a change in earned revenues. In other words, I disagree with the claim that the initiated –humanitarian— crises in the aftermath of the imposition of sanctions result from government mismanagement rather than resource scarcity. Yet, this claim does not hold true under long-term sanction plans when state institutions are altered under the imposed circumstances.
I define the dependent variable of fiscal capacity as the collected tax revenues in the targeted countries, measured and published by IMF at the end of each year. World Bank’s indicators of Tax Revenues as a percentage of GDP are also used to check the robustness of the model. In order to understand the losers and beneficiaries under sanctions, conducting two additional models using income tax (labor) as well as sale and property tax (capital) provides insights into who further burdens the economic pressure in the targeted countries. The models control for a number of variables, including regime type, political stability, and legal property rights.
The second stage aims to understand how diminished fiscal capacity due to revenue shortages, in turn, impact governmental spendings when sanctions are imposed. Herein, I define the welfare state as the sum of public spendings on health, education, and housing as the share of GDP. It is also beneficial to treat each sector’s budget separately and investigate the relevant impact in separate models. I use the collected tax revenues calculated in the previous section as the independent variable fiscal capacity. Last, I control for a number of potentially intervening variables, including the country’s GDP, GDP per capita, debt, population, urbanization, and military budgets.
One drawback of the model is the lack of understanding about targeted states’ economic reforms and development plans. To put it differently, for example, the research does not explain whether the decline of the welfare state is the leadership’s long-awaited plan of implementing austerity and privatization that sanctions have facilitated. While the observed regularities in diverse sanctioned contexts are robust, strengthening the argument needs further scrutiny of the sanctioned leadership and high-level decision-making processes beyond the scope of this paper.
In sum, the research contributes to our understanding of the political economy of developing countries, and the studies of globalization and trade and their impact on domestic affairs. If the proposed hypotheses and causal mechanisms are accepted, the puzzling question for future research is the exit strategy toward a higher level of mobility for the low-income people, while both global integration and isolation lead to the decline of the welfare state and increased inequality.

Author

• Niloofar Adnani, Johns Hopkins SAIS