Destabilizing the corrupt: Economic sanctions and their conflict-inducing consequences

The academic debate on whether economic sanctions stabilize or destabilize target governments has produced mixed findings. This paper argues that the relationship between sanctions and domestic conflict depends on pre-existing governance conditions. Using a global panel of 122 countries spanning 1996–2020, we examine whether corruption moderates the relationship between sanctions and violent internal conflict. The results show that trade sanctions are associated with higher conflict deaths in countries with higher lagged corruption. The marginal effect of trade sanctions becomes positive and statistically significant at around 0.6 on the V-Dem Political Corruption Index and increases at higher corruption levels. In low-corruption settings, trade sanctions are associated with lower conflict deaths, consistent with a rally-around-the-flag mechanism. The results are robust to alternative outcome transformations, extensive- and intensive-margin tests, mean-centered interaction specifications, alternative corruption measures, lag structures, and sender definitions. Arms sanctions show a similar positive interaction with corruption, although pre-sanction lead tests suggest more caution in interpreting these estimates. Financial sanctions and government-stability outcomes provide weaker evidence. Overall, the findings indicate that the association between sanctions and domestic conflict varies with the governance environment of the target country.