Worth the pain? Firms' exporting behaviour to countries under sanctions

Matthieu Crozet, Julian Hinz, Amrei Stammann and Joschka Wanner. Revise and resubmit at European Economic Review.

How do exporting firms react to sanctions? Specifically, which firms are willing — or capable — to serve the market of a sanctioned country? We investigate this question drawing on recent econometric advances in bias-corrected dynamic high-dimensional fixed effects binary choice estimators and monthly data on the universe of French exporting firms to all destinations. We find large heterogeneity in the sanctions effect on the firm-level extensive margin of trade, both for different sanctions episodes and for firms with different characteristics. Prior experience in the sanctioned country considerably softens the blow of sanctions. In some cases, firms also appear to be able to benefit from experience in other “crisis countries” in coping with the difficult conditions. Finally, we find some suggestive evidence for sanction avoidance by exporting indirectly via neighboring countries.

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