Narrative-driven sanctions: an empirical analysis of the economic impacts of the Xinjiang cotton incident

The economic impacts of narrative-driven sanctions are uncertain. This study uses the 2021 Xinjiang cotton incident as a quasinatural experiment to examine its impact on the development of domestic enterprises. The findings indicate that this narrative-driven and reputational shock promoted the growth of Chinese apparel enterprises, as evidenced by a notable rise in their total asset growth rate. Mechanism analysis demonstrates that this positive effect primarily operates through reductions in operating costs and improvements in production efficiency. Furthermore, heterogeneity analysis indicates that the growth-promotion effect is greater for smaller, younger, nonstate-owned enterprises with high research and development (R&D) investment, as well as for enterprises located in central or western regions. This underscores the disparities in enterprises' adaptive capabilities in response to external economic shocks.