Technological sanctions and their unintended consequences: Theory and evidence

We extend Melitz's (2003) model to demonstrate that technology sanctions can lead to unintended economic consequences when targeting countries with substantial technology stocks. Rather than hindering the sanctioned country's technological progress, sanctions may facilitate the emerge of high-productivity domestic firms that outpace international competitors, ultimately boosting the sanctioned country's overall productivity. Our empirical analysis, using the Panel Smooth Transition Regression (PSTR) model, reveals that when a sanctioned country's technology stock reaches approximately 75 % of the sanctioning country's level, the negative impact of sanctions diminishes, potentially resulting in counterproductive outcomes. Additionally, countries with larger populations demonstrate greater resilience to technology sanctions. • This paper presents a simple model to address the impacts of technology sanctions. • Sanctions on a high-tech country can have unintended counterproductive effects. • Sanctions weaken when the sanctioned country's technology stock hits a threshold. • A threshold, near 75 % of the sanctioning country, yield counterproductive results. • Larger populations enhance a country's resilience to technology sanctions.