Courtesy of Ohyun Kwon, Constantinos Syropoulos, & Yoto v. Yotov
Tuesday, Feb. 11 marked the 2025 Mattersdorff-Steinhardt Lecture, an annual lecture held by the Economics Department. This year’s lecturer was Dr. Yoto V. Yotov, a professor at Drexel University, a research professor at the Ifo Institute for Economic Research in Munich and a member of the Council for Economic Analysis of Bulgaria.
Yotov’s research focuses on trade policy and sanctions. His lecture was prefaced by an introduction first by Professor and Chair of Economics Moriah B. Bostian and then Assistant Professor of Economics Anna Miromanova.
“Yotov has a lot of policy-relevant experience. He works a lot with international trade, works a lot with sanctions, and so today he will tell us about the sanctions, the evolutions, the challenges that sanctions present as a foreign policy tool. And yes, I’m very excited,” Miromanova said.
Yotov began his lecture by discussing how Trump’s executive orders and threats to sanction entities including Russia, Canada and the International Criminal Court have made his research specialization increasingly relevant.
Yotov showed several graphs on screen tracking the overall number of sanctions that have been imposed globally since their first widespread use in the 20th century.
“It is very clear that the number of sanctions are in place, and also new cases have increased significantly over time, and especially in the past couple of years. So I think there is not a doubt that sanctions are important, quite interesting, and for good or bad, they are going to be even more relevant during the current Trump presidency,” he said.
Sanctions are withdrawals of trade relations with another country for foreign or security policy purposes. Sanctions place economic stress on a country and therefore serve to compel or deter a country from taking certain actions. Yotov clarified that, although Trump is technically threatening other nations and entities with “tariffs,” he treats Trump’s tariffs — taxes on imported foreign-made goods — as sanctions because they are being imposed for reasons beyond preserving domestic industry. For example, tariffs on Canadian and Mexican products are being threatened to curb illegal immigration and the flow of fentanyl into the United States. Whether they will be officially imposed and whether they will achieve their aims remains to be seen.
According to Yotov’s research framework, the total effects of a sanction includes the effects on the primary target and sender of sanctions (for example, Russia and the United States, respectively), as well as the allies and enemies of the target and sender countries. There are also general equilibrium effects on the international community and extraterritorial effects on both the sender and target of sanctions. These extraterritorial effects are the response of other countries — who are neither the sender nor the target of sanctions — to the imposition of sanctions. These effects can be negative, such as when countries decreased trade with Cuba due to the U.S. embargo established in 1960. But they may also be positive, as there are cases when certain countries increase trade with a country who has been sanctioned by the U.S., as Yotov discussed later in the lecture. Extraterritorial effects are vital to analyzing sanctions but are currently an understudied area in the field’s literature.
Yotov uses the economic gravity model for his work, which he argues effectively accounts for multi-lateral remoteness of certain countries.
Yotov’s research found that the extraterritorial effects of former President Biden’s 2022 sanctions on Russia had no impact on the United States, but actually may have improved Russia’s trade outcomes.
“When the European Union and the United States and Australia and Japan, when they sanctioned Russia, people complained that all the sanctions were not effective. And a big part of the reason why is because Russia diverted economic activity to India, Turkey, China and probably some of the other BRIC countries,” Yotov said. “So these general equilibrium effects, they are essentially trade diversion effects. When Russia doesn’t trade with the European Union, it trades more with India and China, and this is wonderful for these three countries. When a sender sanctions a given target, there are trade diversion effects to third countries, and they are very happy, because now they are enjoying FDI (foreign direct investment) or trade at the lower prices.”
Yotov’s research suggests that these extraterritorial effects not only may be present in international trade analysis, but that they might even be able to offset the full effects of sanctions.
Yotov’s lecture shed light on the complexities of modern sanctions, highlighting their unintended consequences and the broader economic shifts they create. By using economic models to analyze trade diversion and extraterritorial effects, his research challenges conventional assumptions about the effectiveness of sanctions. As global trade policies continue to evolve, Yotov’s work offers valuable insights into how nations navigate the economic and political landscape of sanctions in an increasingly interconnected world.
“If we don’t take the extraterritorial effects into account, our primary estimate of the effect of sanctions may be biased, and we have evidence that they may be biased up to 50% which is very large, and then the trade diversion effects may be biased as well. So as you can see, in order to evaluate the impact of sanctions, it looks like the relationship can get quite complex,” Yotov said.
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