Abstract:
This article gives an introduction into the economics of food sanctions. It is shown which economic impacts arise from food sanctions and how they are affected by their determinants. The empirical evidence is reviewed and unresolved questions are elaborated. Theoretically, an export embargo for food can cause strong or weak impacts on the target country, on the embargo sender and on non-participating countries. Crucial for the economic effects are the nature of the embargo, the strategies for adjustment of the countries in the sanctioned market, and the market position of the embargo sender. The empirical evidence for the US grain embargo against the USSR shows that the international grain market adjusted flexibly to the embargo. A significant change in the structure of international grain trade took place whereas the aggregate impacts of the embargo remained modest. Two pre-conditions for an effective embargo are often stressed. First, the embargo sender must have a monopoly or convince potential competitors not to expand their sales to the target country. Second, transshipment does not occur. Both pre-conditions did not hold true in the case of the grain embargo. In fact, an international commodity market can hardly be thought of where these conditions are met. Hence, the rationale for food sanctions could rather lie in the political signalling function than in strong economic impacts on the embargoed nation. An important finding is that methodology matters for the magnitude of the measured effect of the grain embargo. In particular, the impacts on the structure of grain trade are sensitive with respect to the methodology used. Therefore, it is increasingly necessary to test the assumptions of the empirical trade modeis.
