Beyond Trade Losses: Sanctions and the Resilience of Productive Economies

This dissertation examines the impact of economic sanctions on the productive capacity of targeted economies. While sanctions are designed to impose economic costs that weaken industries and constrain long-term development, systematic evidence on their effect on production, diversification, and sophistication remains limited. Existing research has primarily focused on trade flows, by contrast, this study analyzes sanctions through the lens of production, providing a more direct assessment of whether external pressure erodes or reshapes domestic output. The analysis proceeds in three complementary approaches. First, a sectoral study of the 2014 Russian countersanctions against European Union agricultural products evaluates whether trade disruptions translated into production decline. Despite sharp contractions in trade flows, the results show that domestic producers in the most exposed EU sectors sustained their output, underscoring the resilience of production even under significant shocks. Second, a cross-country study employing a staggered adoption design investigates whether sanctions affect the variety and sophistication of national production portfolios. The findings reveal no systematic evidence that sanctions reduce either the diversity or complexity of economic output, challenging assumptions that external restrictions curtail developmental trajectories. Third, a synthetic case study of the US embargo on Nicaragua examines whether sanctions imposed on a highly dependent country eroded its economic complexity. The analysis provides suggestive evidence of an initial decline, yet the trajectory indicates that this sharp downturn was followed by a substantive rebound in the later years of the embargo. Taken together, the findings demonstrate a surprising degree of resilience in productive structures under sanctions. Across sectoral, comparative, and case-study analyses, industries show a capacity to adapt and sustain output despite external constraints. These results suggest that sanctions may be less effective at undermining the productive foundations of targeted economies than commonly assumed.