Crime and Punishment? Anticipation, Diffusion, and Propagation of Global Sanctions
93 Pages Posted: 11 Jul 2022 Last revised: 15 Jan 2025
Date Written: June 25, 2022
Abstract
Global sanctions are increasingly used to limit authoritarian regimes worldwide. Using Russia and its banking industry in 2014--2020 as a laboratory, we find that staggered sanctions announcements produce unintended anticipation effects among targeted but not-yet-sanctioned state-controlled banks by spurring them to increase international borrowings and sell foreign asset holdings before freezing. The uncertainty associated with staggered sanctions also produces diffusion effects on non-targeted private banks with political ties, defined through board connections or regional presence. Targeted banks preemptively cut loan supply by at least 20%, but negative real effects occur only when they lend to firms under concurrent sanctions.
Keywords: Political connections, Staggered policy implementation, International borrowings, Foreign asset holdings, Difference in differences, Aggregate real effects
JEL Classification: F51, G41, H81, L25
Suggested Citation: Suggested Citation