In this paper, we use a novel firm level dataset for Germany to investigate the effect of sanctions on the export behaviour and performance of German firms. More specifically, we look at the economic sanctions imposed by the EU against Russia in 2014 in response to the annexation of Crimea as well as Russia’s countermeasures. In addition to a significant reduction of trade relationships on the extensive margin, we find a substantial negative effect on the volume of exports and the number of products traded. While the negative effects are strongest for firms exporting products subject to trade restrictions, we also provide further evidence on the indirect effects of sanctions. Analysing the impact on broader measures of firm performance including total sales and employment, we document that the cost of sanctions is heterogeneous across firms but overall modest. Our results reveal that the negative impact of the shock was concentrated primarily among a small number of firms that were highly dependent on Russia as an export market and those directly affected by the sanctions.

Keywords: sanctions, foreign policy, trade, firm behaviour, Germany

JEL-Classification: F51, F13, F1