IDEAS home Printed from https://ideas.repec.org/a/oup/ecpoli/v32y2017i90p263-318..html
   My bibliography  Save this article

You’re banned! The effect of sanctions on German cross-border financial flows

Author

Listed:
  • Tibor Besedeš
  • Stefan Goldbach
  • Volker Nitsch

Abstract

Summary This paper examines the effect of financial sanctions on cross-border capital flows. While sanctions can be expected to hinder international transactions, thereby putting political and economic pressure on a target country, we study the patterns of adjustment in bilateral financial relationships after the imposition of sanctions along various dimensions. Our analysis is based on highly disaggregated, monthly data from the German balance of payments statistics for the period from 2005 through 2014. During this time, Germany imposed financial sanctions on 20 countries; two of these sanctions have been lifted. Applying a differences-in-differences approach, we find two key results. First, financial sanctions have a strong and immediate negative effect on direct financial flows with the sanctioned country, with cross-border flows reduced in either direction. Second, sanctions imposed by the European Union alone, and therefore only enforced by their member countries instead of the United Nations, are evaded as flows with major trading partners of sanctioned countries increase. We conclude that financial sanctions do matter for capital flows.

Suggested Citation

  • Tibor Besedeš & Stefan Goldbach & Volker Nitsch, 2017. "You’re banned! The effect of sanctions on German cross-border financial flows," Economic Policy, CEPR;CES;MSH, vol. 32(90), pages 263-318.
  • Handle: RePEc:oup:ecpoli:v:32:y:2017:i:90:p:263-318.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/epolic/eix001
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Caruso Raul, 2003. "The Impact of International Economic Sanctions on Trade: An Empirical Analysis," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 9(2), pages 1-36, April.
    2. Keith Hartley & Todd Sandler (ed.), 2007. "Handbook of Defense Economics," Handbook of Defense Economics, Elsevier, edition 1, volume 2, number 1, 00.
    3. Jamal Ibrahim Haidar, 2017. "Sanctions and export deflection: evidence from Iran," Economic Policy, CEPR;CES;MSH, vol. 32(90), pages 319-355.
    4. Eswar S. Prasad, 2011. "Role reversal in global finance," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 339-390.
    5. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 2007. "Economic Sanctions Reconsidered, 3rd edition (hardcover)," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4075, January.
    6. Lance Davis & Stanley Engerman, 2003. "History Lessons: Sanctions - Neither War nor Peace," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 187-197, Spring.
    7. Lee, Yong Suk, 2018. "International isolation and regional inequality: Evidence from sanctions on North Korea," Journal of Urban Economics, Elsevier, vol. 103(C), pages 34-51.
    8. Forbes, Kristin J. & Warnock, Francis E., 2012. "Capital flow waves: Surges, stops, flight, and retrenchment," Journal of International Economics, Elsevier, vol. 88(2), pages 235-251.
    9. Slavi T. Slavov, 2007. "Innocent or Not‐so‐innocent Bystanders: Evidence from the Gravity Model of International Trade About the Effects of UN Sanctions on Neighbour Countries," The World Economy, Wiley Blackwell, vol. 30(11), pages 1701-1725, November.
    10. Kaempfer, William H. & Lowenberg, Anton D., 2007. "The Political Economy of Economic Sanctions," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 2, chapter 27, pages 867-911, Elsevier.
    11. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 2009. "Economic Sanctions Reconsidered, 3rd Edition (paper)," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4129, July.
    12. Chao Jing & William H. Kaempfer & Anton D. Lowenberg, 2003. "Instrument Choice and the Effectiveness of International Sanctions: A Simultaneous Equations Approach," Journal of Peace Research, Peace Research Institute Oslo, vol. 40(5), pages 519-535, September.
    13. Jiawen Yang & Hossein Askari & John Forrer & Lili Zhu, 2009. "How Do US Economic Sanctions Affect EU's Trade with Target Countries?," The World Economy, Wiley Blackwell, vol. 32(8), pages 1223-1244, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Piotr Lukaszuk, 2021. "You can smuggle but you can’t hide: Sanction evasion during the Ukraine crisis," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 71(01), pages 73-125, December.
    2. Matthias Efing & Stefan Goldbach & Volker Nitsch, 2018. "Freeze! Financial Sanctions and Bank Responses," CESifo Working Paper Series 7424, CESifo.
    3. Heydarian, Samira & Pahlavani, Mosayeb & Mirjalili, Seyed Hossein, 2021. "Financial Sanctions and Economic Growth: An Intervention Time-series Approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-14.
    4. Besedeš, Tibor & Goldbach, Stefan & Nitsch, Volker, 2021. "Cheap talk? Financial sanctions and non-financial firms," European Economic Review, Elsevier, vol. 134(C).
    5. Hinz, Julian & Monastyrenko, Evgenii, 2019. "Bearing the cost of politics: Consumer prices and welfare in Russia," Kiel Working Papers 2119, Kiel Institute for the World Economy (IfW Kiel).
    6. Xuepeng Liu & Huimin Shi, 2019. "Anti‐dumping duty circumvention through trade rerouting: Evidence from Chinese exporters," The World Economy, Wiley Blackwell, vol. 42(5), pages 1427-1466, May.
    7. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2020. "How do Firms Respond to Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202011250800001118, Iowa State University, Department of Economics.
    8. Joakim Gullstrand, 2020. "What goes around comes around: The effects of sanctions on Swedish firms in the wake of the Ukraine crisis," The World Economy, Wiley Blackwell, vol. 43(9), pages 2315-2342, September.
    9. Nyoni, Thabani, 2019. "The curse is real in Zimbabwe: economic sanctions must go!," MPRA Paper 96911, University Library of Munich, Germany.
    10. Besedeš, Tibor & Goldbach, Stefan & Nitsch, Volker, 2018. "Cheap talk? Financial sanctions and non-financial activity," Discussion Papers 09/2018, Deutsche Bundesbank.
    11. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2021. "How do Firms Respond to Long-term Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202106020700001118, Iowa State University, Department of Economics.
    12. Lee, Yong Suk, 2018. "International isolation and regional inequality: Evidence from sanctions on North Korea," Journal of Urban Economics, Elsevier, vol. 103(C), pages 34-51.
    13. Goldbach, Stefan & Nitsch, Volker, 2020. "Capital controls checkup: Cases, customs, consequences," Discussion Papers 47/2020, Deutsche Bundesbank.
    14. Hufbauer, Gary Clyde & Jung, Euijin, 2020. "What's new in economic sanctions?," European Economic Review, Elsevier, vol. 130(C).
    15. Kim, Kyoochul, 2020. "Finding Loopholes in Sanctions: Effects of Sanctions on North Korea’s Refined Oil Prices," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 42(4), pages 1-25.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Felbermayr, Gabriel & Kirilakha, Aleksandra & Syropoulos, Constantinos & Yalcin, Erdal & Yotov, Yoto V., 2020. "The global sanctions data base," European Economic Review, Elsevier, vol. 129(C).
    2. Tibor Besedeš & Stefan Goldbach & Volker Nitsch, 2018. "Cheap Talk? Financial Sanctions and Non-Financial Activity," CESifo Working Paper Series 7069, CESifo.
    3. Efing, Matthias & Goldbach, Stefan & Nitsch, Volker, 2018. "Freeze! Financial sanctions and bank responses," Discussion Papers 45/2018, Deutsche Bundesbank.
    4. Besedeš, Tibor & Goldbach, Stefan & Nitsch, Volker, 2021. "Cheap talk? Financial sanctions and non-financial firms," European Economic Review, Elsevier, vol. 134(C).
    5. Piotr Lukaszuk, 2021. "You can smuggle but you can’t hide: Sanction evasion during the Ukraine crisis," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 71(01), pages 73-125, December.
    6. Felbermayr, Gabriel & Syropoulos, Constantinos & Yalcin, Erdal & Yotov, Yoto, 2019. "On the Effects of Sanctions on Trade and Welfare: New Evidence Based on Structural Gravity and a New Database," School of Economics Working Paper Series 2019-3, LeBow College of Business, Drexel University.
    7. Dizaji, S.F. & Lis, P. & Murshed, S.M. & Zweiri, M., 2020. "What the political economy literature tells us about blockades and sanctions," ISS Working Papers - General Series 130655, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    8. Afesorgbor, Sylvanus Kwaku & Mahadevan, Renuka, 2016. "The Impact of Economic Sanctions on Income Inequality of Target States," World Development, Elsevier, vol. 83(C), pages 1-11.
    9. William Seitz & Alberto Zazzaro, 2020. "Sanctions and public opinion: The case of the Russia-Ukraine gas disputes," The Review of International Organizations, Springer, vol. 15(4), pages 817-843, October.
    10. Brzoska Michael, 2008. "Measuring the Effectiveness of Arms Embargoes," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 14(2), pages 1-34, July.
    11. Andreea – Emanuela Drǎgoi & Napoleon Pop, 2016. "Scenario Analysis for the Perspectives of the EU-Russian Federation Relationship," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 4(2), pages 66-73, November.
    12. Frank, Jonas, 2018. "The effects of economic sanctions on trade: New evidence from a panel PPML gravity approach," Hohenheim Discussion Papers in Business, Economics and Social Sciences 17-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    13. Christian Dreger & Jarko Fidrmuc & Konstantin Kholodilin & Dirk Ulbricht, 2015. "The Ruble between the Hammer and the Anvil: Oil Prices and Economic Sanctions," Discussion Papers of DIW Berlin 1488, DIW Berlin, German Institute for Economic Research.
    14. Joshi, Sumit & Mahmud, Ahmed Saber, 2020. "Sanctions in networks," European Economic Review, Elsevier, vol. 130(C).
    15. Ioana M. PETRESCU, 2016. "The Effects of Economic Sanctions on the Informal Economy," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 4(4), pages 623-648, December.
    16. Christopher E.S. WARBURTON, 2016. "The International Law and Economics of Coercive Diplomacy: Macroeconomic Effects and Empirical Findings," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 16(1), pages 35-52.
    17. Jonas Frank, 2017. "The empirical consequences of trade sanctions for directly and indirectly affected countries," FIW Working Paper series 174, FIW.
    18. Matthieu Crozet & Julian Hinz, 2020. "Friendly fire: the trade impact of the Russia sanctions and counter-sanctions," Economic Policy, CEPR;CES;MSH, vol. 35(101), pages 97-146.
    19. Lorenzo Rotunno & Pierre-Louis Vézina, 2017. "Israel’s open-secret trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(2), pages 233-248, May.
    20. Onialisoa Mirana Rakotoarivelo & Hanitriniaina Sammy Gr´egoire Ravelonirina, 2019. "On the Dynamic of Country Development," Journal of Mathematics Research, Canadian Center of Science and Education, vol. 11(2), pages 1-19, April.

    More about this item

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:ecpoli:v:32:y:2017:i:90:p:263-318.. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/cebruuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/cebruuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.