The Impact of Economic Sanctions on South African Exports

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Simon J. Evenett (2002). The Impact of Economic Sanctions on South African Exports. Scottish Journal of Political Economy, Vol. 49, No. 5. Blackwell Publishers / Scottish Economic Society.

Type	journal article
Scope	Economics and economic history of apartheid
Method	econometric
Period studied	1978–1999
Regions	South Africa, European Community (France, Italy, Great Britain), Nordic countries (Denmark, Norway, Sweden), Japan, United States
Themes	sanctions divestment, methods data sources, transition post apartheid, business and state
Citation key	evenett2002b

Argument

The paper estimates how the trade sanctions of eight industrialised importers affected South African exports. It uses a gravity equation with importer-exporter sanction dummies, estimated on annual samples for 1978-1999 that cover pre-sanctions, sanctions and post-sanctions years. South Africa is benchmarked against 30 other middle-income exporters. Naive estimates suggest EC sanctions cut exports most. These estimates depend on outlier bilateral pairs: once the highest and lowest 10% of observations are trimmed, the US Comprehensive Anti-Apartheid Act has the largest and most robust effect, roughly a third. Nordic and Japanese effects are mostly insignificant. The author also finds that US-bound exports did not recover after sanctions were lifted, which suggests hysteresis. He argues more generally that outliers inflate gravity distance elasticities.

Evidence and method

Bilateral import data for 1978-1999 from the World Bank Trade and Production Database (Olarreaga and Nicita 2001), originally UN COMTRADE. Eight importers (Denmark, France, Great Britain, Italy, Japan, Norway, Sweden, US) and 31 middle-income exporters including South Africa, giving 248 pairs per year. National income data come from the World Development Indicators and distances between capitals from a standard gravity dataset. The sanctions chronology comes from Hufbauer, Schott and Elliott (2002).

Place in the debates

• Sanctions effectiveness (did trade sanctions bite?) (see Sanctions, disinvestment and the anti-apartheid movement). Finds measurable trade effects, but concentrated in US sanctions (about a third reduction) rather than EC, Nordic or Japanese measures. The footnote on Levy's claim that sanctions played a 'trivial' role in toppling apartheid is noted but not tested, since the paper only measures trade effects.
• Robustness of gravity-equation estimates / plausible distance elasticities (see Data reliability and econometric method). Argues outliers inflate estimated distance elasticities and dummy coefficients. Trimming reduces the distance elasticity by about half, partly addressing the anomaly raised by Grossman (1998).
• Persistence of sanctions effects after removal (hysteresis) (see Sanctions, disinvestment and the anti-apartheid movement). Suggests effects endure, especially for US-bound exports, via sunk costs and new supplier relationships. EC exports show some bounce-back.

Findings

• The abstract's headline result is that US sanctions, not EC sanctions, had the largest effect once outliers are handled. (p. 1)

  In fact, robustness checks reveal that the United States’ Comprehensive Anti-Apartheid Act played the largest role, reducing bilateral imports by a third.

• Full-sample estimates misleadingly point to EC sanctions as the most damaging. (p. 2)

  Ignoring the potential biases created by outliers leads to the conclusion that the sanctions imposed by the (then) European Communities had the greatest adverse effect on South African exports.

• Sanction effects appear persistent after removal, implying hysteresis in trade patterns. (p. 2)

  Overall, though, the impression is that these trade sanctions continue to have effects well after their removal.

• Removing outliers cuts the estimated distance elasticity substantially, with methodological implications for gravity models. (p. 2)

  In fact, the distance elasticity falls 50% once the outliers are excluded

• The EC result is fragile: when the cutoff is raised to 0.1, few annual EC estimates remain significant. (p. 11)

  When c = 01, however, we can only make a comparable claim for two out of six of these estimated annual elasticities.

• Trimming outliers reduces the implied EC effect from about half to about a quarter. (p. 16)

  However, once outliers are excluded, the EC sanctions regime is found to reduce South African exports by 27%; still a sizeable impact but not a 50% cut.

• The US sanctions regime has the largest implied effect after trimming. (p. 16)

  In contrast, US sanctions are found to reduce the apartheid regime’s exports the most; essentially by a third.

• South African exports to the US did not recover after sanctions were lifted, while EC-bound exports partly did. (p. 16)

  Removal of American sanctions is associated with even lower levels of South African exports

• Nordic and Japanese sanctions show little statistically significant effect. (p. 16)

  Doing so revealed little statistically significant evidence of the effect of Japanese and Nordic sanctions on South African exports.

Evidence ledger

Sources used

Source	Kind	Period	How used
World Bank Trade and Production Database (bilateral imports 1978-1999), originally from UN COMTRADE	international trade or finance data	1978-1999	Supplies the dependent variable (bilateral import flows) for the annual gravity-equation estimates of sanctions effects.
World Bank World Development Indicators CD-ROM (national income, US price deflator, income classifications)	official statistical series	1978-1999	Provides national income data, the US deflator to convert to 1995 dollars, and the middle-income classification used to select comparator exporters.
Great Circle distance data between capitals (gravity-equation web source, Haveman trade resources)	maps spatial data	time-invariant	Proxy for bilateral trade barriers/transport costs (distance term) in the gravity equation.
Hufbauer, Schott and Elliott (2002), Case 62-2 and Case 85-1: Notes on sanctions against South Africa in the post-war era (mimeo, IIE)	secondary literature compilation	1948-1994	Principal source for the chronology of sanctions (Table 1) that defines pre-, during- and post-sanctions periods and which importers are treated as sanctioning.

New data

Author assembled annual cross-sectional gravity datasets for 1978-1999: full bilateral import matrix of 8 industrial importers by 31 middle-income exporters (248 pairs per year), merged with national income, deflators and distance data, plus a chronology of sanctions.

Inference

Quantification: Econometric (causal design).

Year-by-year cross-sectional gravity-equation regressions with importer and exporter dummies, distance, and country-pair sanction dummies for South Africa; the sanction effect is inferred by comparing dummy estimates before (1978-85), during (1986-91) and after (1992-99) sanctions, with South Africa compared against other middle-income exporters. Robustness is tested by trimming outliers of the dependent variable at cutoffs of 1%, 2.5%, 5% and 10%.

Key claims

Claim	Basis	Strength
Including outliers, the estimates imply EC sanctions had the largest adverse effect on South African exports, roughly halving EC imports from South Africa. (p. 566)	Year-by-year gravity regressions on the full 248-pair samples (Table 3, Table 6), using the World Bank/COMTRADE trade data.	Systematic data
The EC result is not robust: trimming outliers sharply weakens it, and the implied reduction falls to about 27%. (p. 567)	Re-estimation at cutoffs c=0.01 to 0.1 (Tables 4 and 6); counts of significant negative annual parameters collapse as c rises.	Systematic data
US sanctions (the CAAA) had the largest and most robust effect, reducing South African exports to the US by about a third. (p. 572)	Trimmed-sample regressions (c=0.1) in Tables 4 and 6, with US dummy estimates becoming more often significant.	Systematic data
Nordic and Japanese sanctions had no statistically significant effect on South African exports. (p. 570)	Table 3 and Table 4 sanction parameters, which are mostly insignificant at all cutoffs.	Systematic data
South African exports to the US did not recover after sanctions were lifted (the sanctions had lasting effects), whereas EC imports showed a small rebound. (p. 572)	Comparison of median sanction parameters across 1986-91 and 1992-99 in Table 6 at c=0.1; the hysteresis interpretation rests on author speculation.	Partial data
Outliers inflate the estimated gravity distance elasticity; trimming 10% from each tail cuts it by about a half, helping explain anomalously large elasticities. (p. 570)	Table 5 median distance parameters across cutoffs.	Systematic data

The author's caveats

Author notes the sanction parameter captures private-sector reluctance as well as state sanctions and should be read liberally, that the sanctions dummies are imprecisely estimated, that distance proxies transport costs only imperfectly, and that distance-based outlier results are not reported for lack of space. Hysteresis explanations are presented as possible interpretations.

Gaps in the evidence

The study identifies sanctions only through a South Africa-by-importer dummy in aggregate bilateral trade, so it cannot separate state sanctions from disinvestment, private boycotts, domestic political instability or South African-specific shocks such as gold and commodity prices. Sector- or product-level trade data (HS/SITC) matching the specific banned goods (iron, steel, coal, agricultural products, krugerrands) would test the mechanisms and exist in COMTRADE. Evidence on firm-level sourcing shifts and enforcement or sanctions-busting via third countries would also be needed.

Replicability: Data described but not public.