MNC Decision Making under Sanctions

Yuichiro Kakutani
2017 Cornell international affairs review  
By using an incentives/disincentives model to map the divergent behaviors of multinational corporations (MNCs) confronted by a sanctioned economy, I explain why some economic sanctions work better than others at achieving their desired political outcomes. When presented with the opportunity to "run the blockade," MNCs are incentivized to sanction bust by the allure of higher profit through rent extraction. At the same time, MNCs are disincentivized to sanction bust by the penalties for breaking
more » ... alties for breaking the sanction, but only if MNCs believe sanction busting operations is inconspicuous enough to avoid detection. If the incentives to sanction bust outweigh the disincentives not to, then MNCs will trade with sanctioned states, as was the case with Rhodesia. Since MNCs were crucial to both the Rhodesian and the South African economies—as it provided oil to the former and operated a significant minority of the firms in the latter—the decisions of MNCs to remain engaged in Rhodesia and to disengage from South Africa had a significant impact on the economic and political life of the two apartheid regimes. Hence, while many economic and political indicators identified by literature predicted that Rhodesia would have a shorter life expectancy under economic sanctions, Rhodesia defied all expectations and survived twice as long as South Africa.
doi:10.37513/ciar.v11i1.500 fatcat:inm5gr2hqfa43avhqmeerho4ea