Cheap talk? Financial sanctions and non-financial firms

Tibor Besedes, Stefan Goldbach and Volker Nitsch

European Economic Review, 2021, vol. 134, issue C

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.

Keywords: Sanction; Restriction; Cross-border transaction (search for similar items in EconPapers)
JEL-codes: F20 F36 F38 F51 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (19)

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Related works:
Working Paper: Cheap talk? Financial sanctions and non-financial firms (2021)
Working Paper: Cheap Talk? Financial Sanctions and Non-Financial Firms (2021)
Working Paper: Cheap talk? Financial sanctions and non-financial firms (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:134:y:2021:i:c:s0014292121000416

DOI: 10.1016/j.euroecorev.2021.103688

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