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Economic Sanctions and Banking Crises in Target Economies

Author

Listed:
  • Emre Hatipoglu
  • Dursun Peksen
Abstract
What effect do economic sanctions have on the stability of banking systems in targeted economies? This manuscript advances the hypothesis that economic sanctions increase the likelihood of systematic banking crises by deteriorating the target economy’s macroeconomic conditions and limiting its access to international capital. To test the argument, we gathered data for over 125 emerging economies for the years from 1970 to 2005. The findings indicate that sanctions are likely to raise the probability of banking crises. The results also show that financial sanctions are more detrimental to the stability of banking systems than trade sanctions. Further, we find that the hypothesized effect of sanctions is conditioned by the extent of economic cost inflicted on targeted economies. One major implication of the findings is that sanctions, as external shocks, can potentially destabilize the financial stability of target countries in addition to the well-documented adverse effects on economic growth, political stability, and humanitarian conditions.

Suggested Citation

  • Emre Hatipoglu & Dursun Peksen, 2018. "Economic Sanctions and Banking Crises in Target Economies," Defence and Peace Economics, Taylor & Francis Journals, vol. 29(2), pages 171-189, February.
    • Handle: RePEc:taf:defpea:v:29:y:2018:i:2:p:171-189
    DOI: 10.1080/10242694.2016.1245811
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    References listed on IDEAS

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    1. Glick,Reuven & Moreno,Ramon & Spiegel,Mark M. (ed.), 2001. "Financial Crises in Emerging Markets," Cambridge Books, Cambridge University Press, number 9780521800204, January.
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    5. Neuenkirch, Matthias & Neumeier, Florian, 2015. "The impact of UN and US economic sanctions on GDP growth," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 110-125.
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    7. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    8. Juan Luis Moreno-Villalaz, 1999. "Lessons from the Monetary Experience of Panama: A Dollar Economy with Financial Integration," Cato Journal, Cato Journal, Cato Institute, vol. 18(3), pages 421-439, Winter.
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    Cited by:

    1. Shchepeleva, Maria & Stolbov, Mikhail & Weill, Laurent, 2024. "Do sanctions trigger financial crises?," Finance Research Letters, Elsevier, vol. 64(C).
    2. Igor Drapkin & Kirill Sidorov & Oleg Mariev, 2022. "The Effect of Sanctions on EU-Russia Trade: The Study for 2015 – 2019," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(9-10), pages 743-767, August.
    3. Moghaddasi Kelishomi, Ali & Nisticò, Roberto, 2022. "Employment effects of economic sanctions in Iran," World Development, Elsevier, vol. 151(C).
    4. Gutmann, Jerg & Neuenkirch, Matthias & Neumeier, Florian, 2023. "The economic effects of international sanctions: An event study," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1214-1231.
    5. Gutmann, Jerg & Neuenkirch, Matthias & Neumeier, Florian, 2024. "Political economy of international sanctions," ILE Working Paper Series 81, University of Hamburg, Institute of Law and Economics.
    6. Gutmann, Jerg & Langer, Pascal & Neuenkirch, Matthias, 2024. "International sanctions and emigration," Journal of Economic Behavior & Organization, Elsevier, vol. 226(C).
    7. Jerg Gutmann & Matthias Neuenkirch & Florian Neumeier, 2021. "Sanctioned to Death? The Impact of Economic Sanctions on Life Expectancy and its Gender Gap," Journal of Development Studies, Taylor & Francis Journals, vol. 57(1), pages 139-162, January.
    8. Klomp, Jeroen, 2020. "The impact of Russian sanctions on the return of agricultural commodity futures in the EU," Research in International Business and Finance, Elsevier, vol. 51(C).
    9. Jun Wen & Xinxin Zhao & Quan-Jing Wang & Chun-Ping Chang, 2021. "The impact of international sanctions on energy security," Energy & Environment, , vol. 32(3), pages 458-480, May.
    10. Firat Demir & Saleh S. Tabrizy, 2022. "Gendered effects of sanctions on manufacturing employment: Evidence from Iran," Review of Development Economics, Wiley Blackwell, vol. 26(4), pages 2040-2069, November.
    11. Heydarian, Samira & Pahlavani, Mosayeb & Mirjalili, Seyed Hossein, 2022. "The Impact of Financial Sanctions on Capital Inflow and Outflow (case of Iran)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(1), pages 67-88.
    12. Ali Moghaddasi Kelishomi & Roberto Nisticò, 2021. "Employment Effects of Economic Sanctions," CSEF Working Papers 615, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    13. Hatipoglu, Emre & Soytas, Mehmet Ali & Belaïd, Fateh, 2023. "Environmental consequences of geopolitical crises: The case of economic sanctions and emissions," Resources Policy, Elsevier, vol. 85(PB).
    14. Mirkina, Irina, 2018. "FDI and sanctions: An empirical analysis of short- and long-run effects," European Journal of Political Economy, Elsevier, vol. 54(C), pages 198-225.
    15. Maxime Delabarre, 2021. "FinTech in the Financial Market," Working Papers hal-03107769, HAL.

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