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,\r\nGlobal Value Chains (GVC) participation and revealed comparative advantage\r\n(RCA). It presents an original theoretical framework exploring the interaction between\r\nsanctions, RCA, and GVC. The empirical exercise adopts an estimation strategy underpinned\r\nby a multi-country and multi-sector gravity model exploiting the OECD-Trade\r\nin Value Added (TiVA) and the Global Sanctions Data Base (GSDB). The analysis is\r\nbased on a purpose-built dataset covering GVC participation indexes on 66 origin and\r\ndestination countries for 23 sectors over the period 1995 and 2018. The analysis fills\r\nan important gap in the literature, focused solely on the relationship between GVC\r\nand RCA, on the one hand, and trade sanctions and GVC, on the other.We find that the\r\neffects of sanctions differ from the buyer (backward) and seller (forward) perspectives;\r\nthat the RCA in a specific country-sector pair plays a key role in driving sanctions’\r\nnegative impact, and finally that the level of heterogeneity of the impact is such that\r\nonly a fine-grained analyses of each sector vis-à-vis its RCA stance could paint the\r\nfull picture of this complex phenomenon.