Much Ado About Nothing? The Extraterritorial Effects of the U.S. Embargo Against Cuba

We provide quantitative evidence that the primary effects of economic sanctions are accompanied by strong extraterritorial effects – estimates of the former effects may be significantly biased if the latter effects are not taken into account. An econometric analysis of the U.S. embargo on Cuba unveils the presence of large and significant extraterritorial effects that vary across Cuba’s trade partners and also depend on the direction of trade flows between Cuba and third countries. During the U.S. embargo, Cuba’s trade with most non-sanctioning states decreased, while its trade with economic allies and states in close proximity increased. A complementary general-equilibrium analysis reveals that the extraterritorial sanctions on Cuba caused large welfare losses for the target, but very small effects on the rest of the world. As such, the analysis sheds new light on the motives for opposing extraterritorial sanctions and suggests that these motives may be more political than economic