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You're banned! the effect of sanctions on German cross-border financial flows

Listed author(s):
  • Besedeš, Tibor
  • Goldbach, Stefan
  • Nitsch, Volker

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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File URL: https://www.econstor.eu/bitstream/10419/140902/1/859680258.pdf
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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 12/2016.

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Date of creation: 2016
Handle: RePEc:zbw:bubdps:122016
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  1. Jamal Ibrahim Haidar, 2017. "Sanctions and export deflection: evidence from Iran," Economic Policy, CEPR;CES;MSH, vol. 32(90), pages 319-355.
  2. Eswar S. Prasad, 2011. "Role reversal in global finance," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 339-390.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Kaempfer, William H. & Lowenberg, Anton D., 2007. "The Political Economy of Economic Sanctions," Handbook of Defense Economics, Elsevier.
  8. 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.
  9. 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.
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