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

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  • Besedeš, Tibor
  • Goldbach, Stefan
  • Nitsch, Volker

Abstract

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 cross-border financial flows, with 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 possibly partly evaded.
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Suggested Citation

  • Besedeš, Tibor & Goldbach, Stefan & Nitsch, Volker, 2017. "You’re banned! The effect of sanctions on German cross-border financial flows," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 88417, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:88417
    DOI: 10.1093/epolic/eix001
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/88417/
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    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

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