Not‐So‐Innocent Bystanders: Trade With Neighbours of Sanctioned Countries

ABSTRACT Geographic neighbours of sanctioned countries (targets) may suffer from indirect effects of sanctions or benefit by helping targets circumvent restrictions. I study the effects of sanctions on trade among neighbours and targets using data from BACI for 2002–2022 and separately accounting for export of sensitive goods: arms, dual use goods and machinery. I find that export of dual use goods (in value) and machinery (in value and weight) from benevolent neighbours to targets increases when sanctions are in place. Additionally, I show that the weight of arms exported by neighbours to Iran, as well as value of dual use goods and weight of machinery exported to Russia were significantly higher with sanctions in place suggesting that their neighbours were not innocent bystanders.