The Impact of Economic Sanctions on Political Risk of Target Countries

This article explores the mechanisms and effects of economic sanctions on political risk in target countries and empirically tests them based on panel data for 139 countries from 1984 to 2020. The results show that economic sanctions significantly increase the political risk of the target country, which still holds after using the PSM method, entropy balancing method, substitution of variables, addition of omitted variables, and lagged treatment. In terms of drivers, economic sanctions can raise political risk in target countries by impeding economic growth, increasing income inequality, and reducing international aid. Further analysis shows that improving the level of foreign direct investment, public health expenditure, and government governance can alleviate the impact of economic sanctions on national political risk. This article also finds that among the six main types of economic sanctions, financial sanctions, arms sanctions, cut off military assistance, and diplomatic sanctions have a significant negative impact on the political risk of the target country. Based on the findings, this article proposes policy recommendations on how to deal with economic sanctions and improve political stability.