You're Banned! The Effect of Sanctions on German Cross-Border Financial Flows

53 Pages Posted: 21 Jun 2016

See all articles by Tibor Besedes

Tibor Besedes

Georgia Institute of Technology

Stefan Goldbach

Darmstadt University of Technology

Volker Nitsch

Darmstadt University of Technology - Department of Law and Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: 2016

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.

Keywords: sanction, restriction, cross-border transaction

JEL Classification: F20, F36, F38

Suggested Citation

Besedes, Tibor and Goldbach, Stefan and Nitsch, Volker, You're Banned! The Effect of Sanctions on German Cross-Border Financial Flows (2016). Bundesbank Discussion Paper No. 12/2016, Available at SSRN: https://ssrn.com/abstract=2797085

Tibor Besedes (Contact Author)

Georgia Institute of Technology ( email )

221 Bobby Dodd Way
Atlanta, GA 30332-0615
United States

Stefan Goldbach

Darmstadt University of Technology ( email )

Marktplatz 15
Darmstadt, Hesse D-64289
Germany

Volker Nitsch

Darmstadt University of Technology - Department of Law and Economics ( email )

Marktplatz 15
Residenzschloss
Darmstadt, 64283
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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