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Economic sanction games among the US, the EU and Russia: Payoffs and potential effects

Author

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  • Dong, Yan
  • Li, Chunding

Abstract

Economic sanctions of the US and EU on Russia because of Ukraine crisis in 2014 last for a long time and are still a hot policy topic. This paper uses a 16-country or region numerical general equilibrium model with trade cost and exogenous trade imbalance to explore this three-country economic sanction game payoffs, and simulate the effects of sanctions on individual countries. Our analysis find that all sanction involved countries will be hurt, but comparatively Russia will be hurt more, and the US and EU will be hurt less. Sanction measures of EU have larger impacts to Russia than the US measures, and meanwhile Russian counter-sanction measures will generate larger impacts on the EU than on the US. From the economic perspective, the optimal choice for US and EU is to give up sanction measures to Russia, and retaliation is Russia's optimal choice when faced with sanction measures. Countries out of the sanction game will gain because of trade diversion effects.

Suggested Citation

  • Dong, Yan & Li, Chunding, 2018. "Economic sanction games among the US, the EU and Russia: Payoffs and potential effects," Economic Modelling, Elsevier, vol. 73(C), pages 117-128.
    • Handle: RePEc:eee:ecmode:v:73:y:2018:i:c:p:117-128
    DOI: 10.1016/j.econmod.2018.03.006
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    References listed on IDEAS

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    1. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
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    Citations

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    Cited by:

    1. Xiaoxiao Hu & Ling He & Qi Cui, 2021. "How Do International Conflicts Impact China’s Energy Security and Economic Growth? A Case Study of the US Economic Sanctions on Iran," Sustainability, MDPI, vol. 13(12), pages 1-21, June.
    2. Vladislav I. Zhukovskiy & Lidiya V. Zhukovskaya, 2023. "On the Concept of Equilibrium in Sanctions and Countersanctions in a Differential Game," Mathematics, MDPI, vol. 11(20), pages 1-22, October.
    3. Lastauskas, Povilas & Proškutė, Aurelija & Žaldokas, Alminas, 2023. "How do firms adjust when trade stops?," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 287-307.
    4. El-Shagi, Makram & Fidrmuc, Jarko & Yamarik, Steven, 2020. "Inequality and credit growth in Russian regions," Economic Modelling, Elsevier, vol. 91(C), pages 550-558.
    5. Ignatov Augustin, 2018. "Towards a Confident Europe: Fostering European Foreign Policy as a Premise to Enhanced European Economic Security & Competitiveness," Global Economy Journal, De Gruyter, vol. 18(3), pages 1-13, September.
    6. Morad Bali & Thanh T. Nguyen & Lincoln F. Pratson, 2024. "Impacts of EU Sanctions Levied in 2014 on Individual European Countries' Exports to Russia: Winners and Losers," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 50(2), pages 154-194, April.
    7. Xu, Shuanglei & Deng, Youyi & Nepal, Rabindra & Jamasb, Tooraj, 2024. "Geopolitical Conflict and Risk and the EU Energy Trading: A Dynamic Evolutionary Networks Analysis," Working Papers 14-2024, Copenhagen Business School, Department of Economics.
    8. George Saridakis & Constantinos Alexiou & Roger Hoseinc & Nirvana Satnarine-Singhc, 2022. "Hegemonic Sanctions and Global Economic Ramifications in the Context of the Russian-Ukrainian Conflict: A Commentary," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 72(1-2), pages 34-55, January-J.
    9. Huang, Qingbo & Zhang, Xiaohan & Li, Yan, 2023. "Study on the economic effects of China and ASEAN countries from the New International Land-Sea Trade Corridor," Transport Policy, Elsevier, vol. 139(C), pages 123-135.
    10. Yang Ye & Qingpeng Zhang, 2024. "The futility of economic sanctions in a globalized and interdependent world: a data-driven game theoretical study," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-10, December.

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    More about this item

    Keywords

    Economic sanction; Game solution; Numerical general equilibrium; Economic effects;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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