Volker Nitsch (Technische Universität Darmstadt) - Going Backwards: Firm-Level Responses to Geopolitical Tensions

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BOFIT Seminar - Volker Nitsch (Technische Universität Darmstadt) - Going Backwards: Firm-Level Responses to Geopolitical Tensions

Co-authors: Stefan Goldbach (Deutsche Bundesbank) and Daria Suprunenko (Dekabank)

Abstract
How do firms adapt to geopolitical tensions? We examine the responses of German firms to a major shock of geoeconomic fragmentation, the sudden, surprising and severe deterioration in Germany’s bilateral relationship with Russia in 2014. Faced with an increase in uncertainty after Russia’s breach of international law when it illegally annexed Crimea, firms have quickly taken action to reduce their business exposure to Russia. Our results indicate a sizable, though largely temporary, decline in foreign direct investment. German firms that continue to do business in Russia have a long, successful presence in Russia and are active in fewer foreign markets.

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