INSIDE GLOBAL ISSUES
Working Paper No. 201617
October 18, 2016
Economic Sanction Games among US, EU and Russia:
Solutions and Potential Effects
Dong Yan , Li Chunding
Abstract
Economic sanction of the US and EU to Russia because of Ukraine crisis in 2014 is a hot topic. This paper uses a 16-country numerical general equilibrium model with trade cost and exogenous trade imbalance to explore this three-country economic sanction game solutions, 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.
Keywords: Optimal Tariffs, General Equilibrium, Model Structure, Trade Liberalization
1. Introduction
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2. A Game of Sequential Economic Sanctions
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3. A GE Model with Economic Sanction
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4. Numerical Model Data and Parameters Calibration
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5. Numerical Analysis of Sanction Game Solutions and Effects
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6. Optimal Sanctions for US, EU and Russia
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