Impact of Trade Sanction on Developing Economy: A Review of Literature

Abstract

Sanctions are a type of government action against specific trading partners to make sure that the targeted country suffers more from the sanctions than the country imposing them. The goal of sanctions is to prevent certain types of commerce or investment with the target country. A trade sanction can be imposed unilaterally or multilaterally or by an international organization. The major impact of a sanction is the trade decline of the target country, while the additional impacts include negative pressure on investment, foreign currency reserves, exchange rate and cost of credit. Economic sanctions may also adversely affect the imposing country through loss of trust in the firms of the home economy. The review of literature suggests that the recent sanctions are more political rather than neutralizing monopoly power. However, the burden of sanction generally falls on the citizens who are not responsible for the government policies.