Cut off from capital: The impacts of sanctions on portfolio investments

Iikka Korhonen and Heli Simola

No 7/2026, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: We examine the impact from sanctions on global capital flows. Sanctions can be understood as an extreme version of geopolitical decoupling that affects economic relations, including trade and foreign direct investment. Specifically, we look at how the introduction of wide-ranging financial sanctions has affected foreign portfolio investment, treating Western sanctions packages on Russia in 2014 and 2022 as a natural experiment. Applying a triple-difference setup and using annual portfolio investment data collected by the IMF, our results show that portfolio investment flows into Russia sharply declined from both sanctioning and non-sanctioning countries particularly after 2022. The decline in investment from sanctioning countries was much more severe, however. Unlike with trade, we find little evidence of investment diversion for Russia after imposition of sanctions.

Keywords: sanctions; portfolio investment; emerging economies; Russia (search for similar items in EconPapers)
JEL-codes: F02 F2 F51 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:343548

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