The Hidden Cost of Sanctions: Trade Openness Left European Economies More Exposed

Economic sanctions are designed to impose pressure on targeted states, but the countries enforcing them do not operate outside the economic shockwave. The study "Growth Costs of Economic Sanctions: Panel Evidence from European Sanctioning Economies After 2022," published in the MDPI journal Economies by Rūta Bankauskaitė and Vaidas Gaidelys of Kaunas University of Technology, shifts the focus from Russia and Belarus to the European economies that tightened sanctions against them after the invasion of Ukraine.

Across the period from 2022 to 2024, real GDP growth among European sanctioning economies was around 1.47 percentage points lower relative to a comparison group of non-sanctioning countries, after accounting for country-specific characteristics, common annual shocks and several macroeconomic variables. The authors are careful, however, not to describe this number as a clean causal estimate of sanctions alone.

Sanctions were introduced during an extraordinary economic period shaped simultaneously by the war in Ukraine, disrupted energy supplies, inflation, commodity-price volatility, refugee movements and an uneven recovery from the pandemic. The study offers something more useful than a simple verdict on whether sanctions "worked": it provides evidence about how the costs of geoeconomic confrontation can spread through the economies implementing it.

Sanctions Do Not Stop at the Target Country

Most sanctions research has concentrated on the economic damage experienced by the state being sanctioned. This approach makes intuitive sense because restrictions on finance, technology, trade and investment are deliberately designed to constrain the target. Yet it leaves a major policy question insufficiently examined: what happens to the economies that cut commercial relationships, reorganize supply chains and absorb the consequences of retaliation?

The authors examine that question using annual data covering 60 countries between 2016 and 2024. The treatment group consists of 31 European economies participating in the sanctions regime, while the comparison group contains 29 countries from Africa, Asia, the Middle East and Latin America that did not impose an equivalent sanctions regime during the study period.

The researchers employ a difference-in-differences framework, comparing changes in GDP growth before and after 2022 between the two groups. Their analysis incorporates country and year fixed effects and macroeconomic variables including inflation, capital formation, foreign direct investment, population growth and government expenditure, while drawing data from the IMF, World Bank and UN Comtrade.

The resulting growth differential is economically substantial. Average growth among sanctioning economies declined from 2.58% during 2016–2021 to 2.18% during 2022–2024, while the control-group average rose from 2.59% to 3.62%. The authors stress that these raw movements cannot themselves establish causality, but the estimated negative differential survives numerous alternative specifications.

The Biggest Pressure Fell on Economies Most Exposed to the World

Perhaps the study's key contribution is not the average 1.47-point gap but the evidence that the burden was distributed unevenly. Countries entered the sanctions period with very different levels of dependence on external trade, Russian and Belarusian markets, energy imports and international supply chains. Those structural differences appear to have shaped their subsequent adjustment.

Trade openness emerges as the strongest and most consistent dividing line. Economies that were more internationally integrated before 2022 experienced a larger negative post-2022 growth differential, supporting the argument that sanctions can become more costly where production, investment and consumption depend heavily on cross-border flows.

Export dependence also mattered. Within the sanctioning group, greater pre-2022 dependence on Russian and Belarusian markets was associated with a more negative growth change after sanctions intensified. The model suggests that each additional percentage point of pre-sanctions export dependence strengthened the negative differential by about 0.14 percentage points, although the authors caution against interpreting these estimates as precise country-specific causal effects.

Energy vulnerability, by contrast, did not produce statistically significant differences across countries. This does not mean the energy shock was economically unimportant; rather, the study could not establish that economies with greater pre-2022 dependence on Russian energy systematically experienced larger growth penalties than others. Rapid diversification of energy supplies and the global nature of energy-price movements may have weakened the observable cross-country relationship.

The Evidence Is Strong Enough to Matter, but Not Clean Enough for Simple Causality

The paper deserves attention partly because it does not hide the weaknesses of its own identification strategy. The main methodological concern arises from 2021, when European sanctioning economies showed an unusually strong growth position relative to the comparison group before the sanctions shock formally began. The pattern may reflect Europe's faster post-pandemic rebound rather than an underlying trend, but it complicates the counterfactual.

The authors consequently describe the 1.47-point estimate as potentially an upper bound on the sanctions-related component of the post-2022 growth differential. Their sensitivity tests suggest that the negative result survives limited departures from the assumption that the two groups would otherwise have followed parallel trends, but it becomes less secure under more moderate violations.

There is another structural difficulty: almost all plausible European comparison economies were either participants in the sanctions coalition, targets of sanctions, or economically exposed to the shock. The researchers therefore use non-European countries as controls, reducing the risk that sanctions spillovers contaminate the comparison but increasing differences in economic structure between the groups.

Importantly, the negative relationship remains across a wide range of robustness exercises, including excluding 2021, dropping the pandemic years, changing the estimation period, removing individual countries, modifying the control-group composition and adjusting assumptions about statistical inference. Even so, the study explicitly concludes that the estimate should be interpreted as a growth differential associated with the sanctions episode, not as the isolated effect of sanctions stripped of war, energy and post-pandemic influences.

Sanctions Policy Now Requires an Economic Resilience Strategy

The policy message extends far beyond the Russia sanctions regime. Economic restrictions are becoming part of a broader era of geoeconomic fragmentation in which trade, technology, finance and investment are increasingly influenced by strategic alignment. Governments therefore need to assess sanctions not only by how much pressure they impose on an adversary, but also by how effectively domestic economies can absorb the resulting adjustment.

For highly open economies, resilience may require greater market diversification, flexible supply chains, alternative transport and payment infrastructure, stronger access to replacement suppliers and policies that help firms redirect exports. Small economies can be particularly exposed because the loss of even a limited number of external markets can represent a comparatively large share of domestic commercial activity.

The findings also matter for developing countries and the Global South, even though they are not the principal sanctioning economies studied. As trade blocs reorganize, third countries may become alternative suppliers, transit hubs, investment destinations or markets for redirected exports. These shifts could create opportunities, but they could also increase exposure to secondary sanctions, commodity volatility, geopolitical pressure and fragmented global standards.

The larger point is that economic statecraft is not costless diplomacy. Sanctions can remain strategically justified even when they impose economic costs on the coalition implementing them, but policymakers need to understand those costs before assuming that trade restrictions can be expanded without domestic consequences. The relevant policy question is therefore not simply whether sanctions hurt the sender, but whether governments can design coalitions, transition mechanisms and resilience policies that prevent those costs from undermining economic competitiveness and political durability.

The study presents sanctions as a two-sided economic instrument. Its evidence does not prove that sanctions alone reduced European growth by precisely 1.47 percentage points, and the authors explicitly caution against that interpretation. What it does demonstrate is that the post-2022 sanctions period coincided with measurable and uneven adjustment pressures inside the sanctioning coalition itself, with the largest vulnerabilities concentrated in economies most deeply connected to international trade.