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Cheap talk? Financial sanctions and non-financial firms

Besedeš, Tibor and Goldbach, Stefan and Nitsch, Volker (2021):
Cheap talk? Financial sanctions and non-financial firms.
134, In: European Economic Review, p. 103688. ISSN 0014-2921,
DOI: 10.1016/j.euroecorev.2021.103688,
[Article]

Abstract

Sanctions restrict cross-border interactions and therefore, not only put political and economic pressure on the target country, but also adversely affect the sender country. This paper examines the effect of financial sanctions on the country imposing them. We analyze the business responses of German non-financial entities to the imposition of sanctions on 23 countries over the period from 1999 through 2014. Examining highly disaggregated, monthly data from the German balance of payments statistics, we find four main results. First, German financial activities with sanctioned countries are reduced after the imposition of sanctions. Second, firms doing business with sanctioned countries tend to be disproportionately large, often having alternative business opportunities. Third, firms affected by sanctions expand their activities with non-sanctioned countries, some of which display close trade ties to the sanctioned country. Fourth, we find no effect of sanctions on broader measures of firm performance such as employment or total sales. Overall, we conclude that the economic costs of financial sanctions to the sender country are limited.

Item Type: Article
Erschienen: 2021
Creators: Besedeš, Tibor and Goldbach, Stefan and Nitsch, Volker
Title: Cheap talk? Financial sanctions and non-financial firms
Language: English
Abstract:

Sanctions restrict cross-border interactions and therefore, not only put political and economic pressure on the target country, but also adversely affect the sender country. This paper examines the effect of financial sanctions on the country imposing them. We analyze the business responses of German non-financial entities to the imposition of sanctions on 23 countries over the period from 1999 through 2014. Examining highly disaggregated, monthly data from the German balance of payments statistics, we find four main results. First, German financial activities with sanctioned countries are reduced after the imposition of sanctions. Second, firms doing business with sanctioned countries tend to be disproportionately large, often having alternative business opportunities. Third, firms affected by sanctions expand their activities with non-sanctioned countries, some of which display close trade ties to the sanctioned country. Fourth, we find no effect of sanctions on broader measures of firm performance such as employment or total sales. Overall, we conclude that the economic costs of financial sanctions to the sender country are limited.

Journal or Publication Title: European Economic Review
Volume: 134
Uncontrolled Keywords: Sanction, Restriction, Cross-border transaction
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > International Economics
Date Deposited: 10 Mar 2021 16:46
DOI: 10.1016/j.euroecorev.2021.103688
Official URL: https://www.sciencedirect.com/science/article/pii/S001429212...
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