Author(s):
Ralph De Haas, Mikhail Mamonov, Alexander Popov & Iliriana Shala
Date:
December 7, 2024
Abstract:
How do violent conflicts affect cross-border lending? Using data on syndicated loans by over 14,000 creditors to firms in 179 countries between 1989-2020, we find that when violent conflict erupts in a country, foreign banks reduce overall lending relative to domestic banks but increase their lending to military firms. This effect is observed for both state and privately-owned foreign banks, and is stronger for banks with higher exposures to the conflict country and those domiciled in high-income countries outside the Western bloc. The relative increase in military lending by foreign banks is localized and temporary, neither spilling over to neighboring countries nor persisting after conflicts end. Our findings demonstrate how global banks can serve as conduits for conflict financing by redirecting credit to military sectors.
Link:
CEPR Discussion Paper No. 19743 – Violent Conflict and Cross-Border Lending