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Sanctions, Financial Frictions, and the Organization of Conflict

Author

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  • Limodio, Nicola
  • Mariani, Lucas

Abstract

This paper studies whether financial sanctions increase the financial frictions faced by terrorist groups and how these affect their organization. We exploit staggered sanctions on Pakistani terrorist leaders, linked to unique administrative data matching leaders' identities to charity board composition. After sanctions, associates of sanctioned terrorist leaders create more charities, exposed charities raise more funds, and affected groups splinter into factions. This reallocates terror: attacks increase in Pakistan but decline in the US and Western Europe. A multi-agent LLM analyzes qualitative evidence and yields friction intervals with a midpoint near 20 percent, comparable to a wealth tax on terrorist organizations.

Suggested Citation

  • Limodio, Nicola & Mariani, Lucas, 2026. "Sanctions, Financial Frictions, and the Organization of Conflict," CEPR Discussion Papers 21639, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21639
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    File URL: https://cepr.org/publications/DP21639
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    Keywords

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    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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