MIWI Institute – For a reorientation of German foreign policy: defence, sanctions, development aid and migration

_ Yuri Kofner, economist, MIWI – Institute for Market Integration and Economic Policy. Munich, 9 April 2021.

Introductory summary

From an economic and fiscal point of view, Germany has a flawed foreign policy. Wrong positions or inadequate approaches in German defence policy, participation in international sanctions, official development aid and in its migration management lead to enormous fiscal and welfare costs for the German population. Overall, this wrong-way foreign policy costs every German taxpayer [1] almost 2,500 euros a year on average (Tab 1.).

In contrast, given the political will, a financially realistic correction of Berlin’s current foreign policy would make every German taxpayer 365 euros richer each year. Coupled with a new comprehensive free trade initiative, such an alternative foreign policy could make every German taxpayer richer by almost 4,000 euros annually.

Methodology

In order to measure the costs of the current German foreign policy, four areas are analysed: 1. the military expenditure within the framework of NATO; 2. the welfare costs of German participation in international (i.e., mainly Western) sanctions; 3. the expenditure on international development aid, and 4. the fiscal burdens of taking in asylum seekers. The assessments of the economic and fiscal costs are created using three methods: descriptive statistics, review of relevant research literature, and, when estimating the welfare costs of sanctions, an additional trade gravity model.

The years 2014 to 2019 were chosen as the period for the analysis. This has to do with the fact that the Ukraine conflict broke out in 2014 and thus an important motivation for NATO’s rearmament (rhetoric) and Western sanctions policy emerged, in which Germany plays a major role. On top of that, 2015 was the beginning of the migration crisis. The year 2020 was not included due to the Corona crisis, as this leads to significant outliers in the statistics.

Defence expenditure

Following pressure from the United States[2], the defence ministers of the NATO countries agreed in 2006 in Riga that all member states should increase their military spending to at least 2 percent of GDP.[3]

The official justification is that all NATO members should provide the common public good of Transatlantic security jointly and in solidarity, since the United States traditionally and still has by far the highest defence spending of 3.5 to 4 percent of GDP. In reality, this demand corresponds to the new US military doctrine of “Leading from Behind”, according to which a larger proportion of the costs of US supremacy abroad have to be stemmed by its European allies.[4] The fact, however, that current US foreign defence policy to a large extent does not correspond to Germany’s national interests, is shown, above all, by the reasons and consequences of the migration crisis, which the author will discuss below.

Indeed, based on data from the Stockholm International Peace Research Institute (SIPRI), German military spending averaged 1.2 percent of GDP (37.4 bln euros per year on average). From 2014 to 2019 it has risen by almost a fifth to 44.8 bln euros. For comparison, in the federal budget of 2019, the combined expenditure for education, research and health amounted to only 32.8 bln euros.[5] Germany’s defence budget costs every taxpayer over 1000 euros each year on average.

And yet Washington is demanding that Berlin has to ramp up its commitment from 1.2 to 2 percent of GDP.[6] According to calculations by IW Cologne, the German government would have to spend an additional 86 bln euros more for the years 2021 to 2024 in order to consistently achieve the NATO target during this period.[7] On average, that would be 21.5 bln euros per year or a little more than an additional yearly budgetary expense for the Federal Ministry of Education and Research. Achieving NATO’s 2 percent target would mean an increase in the annual burden on each taxpayer of almost 600 euros. In this case, the average tax burden just for military purposes would amount to 1,615 euros per taxpayer per year.

Sanctions

Sanctions are often seen as “war by other means”, mainly through financial and trade channels, which are used to exert pressure on other states, organizations and individuals that are deemed to have violated international norms or principles.

As part of the Transatlantic community, Germany also participates in multilateral sanctions. In 2018, 30 countries, including Iran, Libya, Syria and Russia, were affected by German participation in Western sanctions.[8]

Research results of the IfW Kiel, which were determined using trade gravity models for 2012-2016 and 2019-2020, showed that the trade and welfare costs of sanctions and counter-sanctions averaged 0.2 percent of German GDP (6.8 bln euros).[9]^,[10] A trade gravity simulation by the author, using the Global Sanctions Data Base[11] for the year 2015, came to similar results of 0.19 percent of GDP (Formula 1).

(1) [12]

X^ij = exp(b₁lnDIST^ij + b₂CNTG^ij + b₃BRDR^ij + b₄_COMCUR^ij + b₅_FTAplus^ij + b₆_CUplus^ij + b₇_MILSANCT^ij + b₈_TRADESANCT^ij+ b₉_FINSANCT^ij+ b₁₀_TRAVSANCT^ij + pⁱ+ c^j) + e^ij

According to a recent study by the ifo Institute, the sanctions against and from Russia alone cause 4/5 of the total sanctions-related welfare losses for Germany (0.16 percent of GDP or 5.5 bln euros).[13]

In this context, the impact of US extra-territorial sanctions for Europe should not be forgotten. Between 2009 and 2019, US companies paid only 3 percent of the fines for US sanctions against Iran, Cuba, Crimea, etc. During the same period, EU companies paid 83 percent of all fines for violating US sanctions against third parties. Together with Swiss companies, it was 94 percent. The total amount of fines imposed on European and Swiss companies amounted to 5.3 bln US dollars.[14]

All in all, German citizens are poorer by an average of 82 euros a year because of the federal government’s sanctions policy.

Official development aid

According to the OECD, Germany is the second largest donor of official development assistance (ODA) measured in US dollars and the 7th largest in relation to GDP.[15] Over the study period, German spending on ODA amounted to 0.6 percent of GDP or 19 bln euros on average yearly. Thus, the German taxpayer pays an average of 517 euros for foreign development aid per year.

Official development assistance is defined as government aid designed to promote the economic development and welfare of developing countries.

At this point the author would like to state that he does not regard the provision of development aid and the associated costs as an element of bad or incorrect foreign policy, as one might infer from the introduction of the article. On the contrary, econometric studies show that an increase in ODA brings positive added value for the donor countries, which will be discussed in more detail below.

Refugees

According to data from the Federal Office for Migration and Refugees, a total of 2 million asylum applications were submitted in Germany between 2014 and 2019. That is more than five times as much compared to the period 2008-2013.[16] In addition, between 2014 and 2019 the German authorities issued 560 thousand visas for family reunification.[17]

The main donor countries of asylum seekers in Germany are Syria, Afghanistan, Iraq, Turkey, Nigeria, Somalia, Iran and Eritrea. It is noteworthy that the United States carried out military interventions, regime change operations or sanctions against most of these countries.

A striking study by the Watson Institute concluded that US military interventions in Africa and the Middle East have forcibly displaced over 8 million refugees since 2001 (even 37 million if one includes internally displaced persons).[18]

Unfortunately, the German government supports precisely this destructive US foreign policy within the framework of NATO and the common sanctions policy.

The majority of the resulting refugee flows go to the European Union (5.1 million asylum seekers over 2014-2016), with Germany being the main final destination for asylum seekers. According to Eurostat, 40 percent of all asylum applications made in the EU during the study period, were made in Germany.[19]

And this, despite the fact that there are several safe countries between the migration donor countries and Germany, which does not preclude the conclusion that the relatively benign German social system is an important attraction factor for asylum seekers from the MENA region. According to a study by the United Nations on the reasons for migration from Africa to Europe, for 60 percent of those surveyed “sending money home” was the most important reason for going north.[20]

At least half of the so-called refugees coming to Germany are not actually refugees, since they are not fleeing from war or persecution, but are mainly looking for a better life in Germany for socio-economic reasons. According to official statistics, the right of asylum was not recognized for less than 1 of the 2 million asylum seekers. However, only 12.6 percent (127 thousand people) of those who were obliged to leave the country were de facto deported.[21]

According to the compilation of the AfD parliamentary group in the Hessian state parliament[22], the average fiscal costs for the accommodation and integration of asylum seekers amounted to 27.4 bln euros per year, or even 35.6 bln euros if one takes the average for 2016-2019. Again, that is more than the combined annual federal expenditure on education, research, and health in 2019.

Accordingly, supporting the refugees costs each German taxpayer an average of 743 euros per year (or almost 1,000 euros on average for 2016-2019).

It must be stated here that these are still conservative assessments, as they only take into account the cumulative expenditure of the federal and state governments, but not the expenditure by the municipalities, unemployment and child benefits, and other social benefits for the asylum seekers living in Germany. As stated by the Federal Employment Agency, around 40 percent of the asylum seekers living in Germany were unemployed between 2015 and 2019.[23]

A widespread narrative claims that, as a developed industrial country with a shrinking and aging population, Germany absolutely needs immigration to maintain its labour supply and economic growth.[24] Although this argument is partly plausible, it does not apply to most asylum seekers. Several relevant studies show that the mainly poorly educated refugees (86 percent of the refugees coming to Germany have no vocational or university education degree, 41 percent do not even have a school leaving certificate)[25], even if they integrate into the labour market, over the course of their lives still have a negative net effect on the national budget.

A 2013 study by the OECD estimated the net fiscal impact of immigrants in Germany to be between minus 1.1 and minus 2.3 percent of GDP.[26]

Using the methodology of a study by the Swedish Ministry of Finance[27], the author was able to calculate that the lifelong net fiscal costs of refugees living in Germany since 2014 amount to 0.5 percent of GDP.

Research by the ifo Institute concludes that the 2015 immigration wave has widened the implicit long-term debt burden, i.e., including future pensions, by almost 10 percent of GDP. According to this, every admitted refugee costs the budget around 225 thousand euros over the course of her or his entire life.[28]

Total economic costs

The cumulative total fiscal and welfare costs of Germany’s partly inadequate, partly wrong foreign policy in the areas of security, sanctions, development aid and asylum amount to an average of 90.4 bln euros per year. This corresponds to an average welfare loss of 2.8 percent of GDP and means an average additional burden for every German taxpayer of almost 2500 euros per year (Tab. 1).

A study by the Kiel Institute already mentioned above[29] argues that Berlin should count in the costs for official development aid and participation in transatlantic sanctions to its defence expenditure, whereby the NATO 2 percent hurdle was reached from 2016 onwards. If one adds the fiscal burdens for dealing with the refugee crisis, for which the aggressive US foreign policy in the Middle East and Africa is largely to blame, as pointed out above, then the cumulative average welfare costs for Germany even amount to 3.2 percent of GDP between 2016 and 2019 (Chart 1).

Tab. 1. Welfare costs of Germany’s foreign policy (2014-2019, in relation to GDP)

Source: MIWI Institute.

Policy recommendations – an alternative foreign policy

Germany needs a complete reorientation of its foreign policy. Of course, that would be a daring new beginning for the modern Federal Republic, which in its dimensions would by far exceed Willy Brandt’s Ostpolitik. However, this would not only make Germany much safer, but it would also bring significant prosperity effects with it.

Such a restructuring of German foreign policy would include the following elements: reducing military spending to 1 percent of GDP, lifting all sanctions, increasing official development aid to 1 percent of GDP, and halving expenditure on asylum to 0.4 percent of GDP.

Such an alternative foreign policy would then only cost 2.4 percent of GDP, which, compared to the status quo, would constitute annual savings of 14 bln euros and would make every German net taxpayer 365 euros richer each year. Coupled with a new comprehensive free trade initiative, an alternative foreign policy would make every German net taxpayer almost 4,000 euros richer every year.

The new foreign policy agenda required for this is described as follows:

New defence policy

Through an average annual saving of 5.4 bln euros, military spending must be reduced from 1.2 to 1 percent of GDP and consolidated.

This is based on the realistic assessment that the Bundeswehr can no longer play a deterrent role in the geostrategic conditions of the 21st century, even if the 2 percent rule would be adhered to.

Therefore, the Bundeswehr is to become a small but highly mobile, competent and patriotically devoted force of 100,000 soldiers (from the current manpower of 184,000)[30], whose tasks will mainly be internal security, disaster control and border protection.

At this point it should be noted that the proposed consolidation of military spending does not mean foregoing the urgently needed modernization of the German defence forces.[31] On the contrary, reducing the Bundeswehr’s quantitative manpower would simplify and accelerate the high-quality and high-tech equipment of the troops.

This reduction in expenditure means a clear rejection of the NATO 2 percent agreement, but it does not necessarily entail Berlin’s withdrawal from the Transatlantic alliance.

Since the US foreign policy, which is decisive for the orientation of NATO, does not correspond to German interests, as shown above, and the Bundeswehr in itself cannot be a deterrent enough to guarantee Germany’s geostrategic security and national sovereignty, these must be provided through new regional alliances and other factors.

As part of the concept of “integration of different speeds” and of “concentric rings”[32], Berlin should first try to create an independent European Defence Union (EDU) together with other willing core member states of the EU. France has already officially expressed its support for such a strategic initiative.[33]

On the one hand, deeper cooperation and coordination between the national European armed forces could be sufficient to deter potential external threats. Also, eminent research institutes such as the ifo[34], the ZEW[35] and the IfW Kiel[36] all advocate the creation of a common EU defence system, such as the Permanent Structured Cooperation (PESCO)[37], and a single European market for public defence procurement as a common public good from which significant savings through economies of scale can be expected.

On the other hand, Berlin’s ultimate decision-making authority in all relevant security policy issues must be guaranteed. The creation of a European Defence Union must not undermine Germany’s fundamental national sovereignty by overly extending EDU’s supranational powers.

In the interests of deterrence and ensuring geostrategic independence, national sovereignty over own German nuclear weapons would be an advantage. However, this is denied to the Federal Republic under international law obligations from the Nuclear Non-Proliferation Treaty and the “Two Plus Four” treaty.

Co-financing of the French nuclear weapons program alone would be legally conceivable. However, within the framework of the European alliance clause (Art. 42 (7) TEU), Paris is already obliged to provide military support in the event of an attack on Germany and, as a last resort, to use its nuclear shield.[38]

Second, in order to guarantee peace, stability and security in Europe and Eurasia, and thus to enable the reduction of its military spending in the first place, Berlin should completely rethink its relations with Russia, Iran and China.

None of these three key Eurasian states are realistically planning any hard-power aggression against Europe. And their capabilities for economic and soft power influence on the internal affairs of the EU member states is also far behind the decisive real influence of the USA, which has been ongoing since the 1950s.[39]

On the contrary, Moscow, Tehran and Beijing view the military build-up of the Transatlantic alliance under the Obama and Biden administrations with no less concern than the Western media report the other way around.

For this reason, Germany should initiate a new East Detent and sign comprehensive friendship treaties with Russia, Iran and China as part of a Greater Eurasian (security) partnership.

Of course, this would entail a compromise on such delicate issues as Crimea and the Donbas. A potential solution could be the official recognition of Crimea as part of Russia, the complete reintegration of the Donbas region into Ukraine under the Minsk agreements and Russian financial reparations[40] to Kiev.

Lifting of all sanctions

Based on the previous point, official Berlin should terminate its participation in all international sanctions. Such a step would mean that all sanctioned states would probably also lift their counter-sanctions against Germany.

Thus, not only would the welfare costs of the sanctions policy fall from 0.2 to 0 percent of Germany’s GDP – a gain of 6.8 bln euros or 82 euros per citizen – but the lifting of the sanctions spiral would also stimulate economic growth in the main source countries of the refugees coming to Germany.

The author’s gravity simulation mentioned above shows that in such a scenario the real gross domestic product of Syria would increase by 0.2 percent, Iran by 0.3 percent, Afghanistan by 0.8 percent, Somalia by 1.6 percent, Eritrea by 1.7 percent and of Libya by 2 percent.

According to the author’s own calculations based on the results of regression models by the Kiel Institute[41], this economic growth would reduce the cumulative emigration rate from these countries to Germany by 0.5 percent.

More development aid

In contrast to the spending cuts in the defence and asylum sectors, Germany should actually increase its expenditure on official development assistance from 0.6 to 1 percent of GDP.

Cleverly oriented and effectively managed development aid is not only an advantageous instrument for strengthening bilateral economic relations and one’s own soft power in the region. It also leads to sustainable welfare effects, which can reduce the pressure to emigrate from the developing countries.

A relevant regression analysis by the Kiel Institute for the World Economy has shown that an increase in “late-impact” development aid (e.g., in schools, hospitals and governance) from the OECD countries to the donor countries by 10 percent reduces their annual emigration rate by about 1.5 percent.[42]

According to a rough estimation by the author, assuming a proportional transmission mechanism, an increase in German development aid to 1 percent of GDP could thus reduce the pressure to immigrate from the Middle East and Africa to Germany by around 10 percent.

Rehauling the asylum and migration policy

The entire migration policy of the Federal Republic urgently needs to be reformed. As a result, expenditure on asylum management needs to be halved from 0.8 to 0.4 percent of GDP.

Rothfuß (2020) worked out a good concept for the ID parliamentary group in the European Parliament, which is based on the “primacy of proximity” principle.[43] The key elements of this concept are as follows:

As much as possible, Berlin should strictly prevent illegal immigration as well as dangerous long distance irregular migration. Asylum applications may only be made in Germany’s diplomatic representations abroad in the non-EU countries, e.g., in Turkey, Afghanistan or Libya, and also online.

The humanitarian right of asylum should be granted only for real refugees, while all other asylum seekers for whom no right of asylum was proven should be consistently deported. That alone would halve the number of illegal immigrants staying in Germany, i.e., by almost 150,000 per year.

Asylum seekers living in Germany, which have committed a crime, have forfeited their right for protection and are therefore to be deported. According to the Federal Criminal Police Office[44], in the period from 2014 to 2019 there were a total of 832 thousand asylum seekers, who were suspected of having committed a crime. That is an average of almost 140,000 suspect asylum seekers per year. If one assumes that all 127 thousand deported asylum seekers have committed criminal acts, which, of course, is not the case, then that would mean that at least a total of 706 thousand criminal asylum seekers were still living in Germany by 2020. That would be 118,000 criminal asylum seekers per year who should have been deported but were not.

As part of a “coalition of the willing”, Germany should create and implement a comprehensive remigration agenda, which, of course, would have to meet all human rights requirements. This coalition should include interested migration recipient countries, as well as the most important migration donor countries.

According to the above-mentioned principle of proximity, the key point of this remigration policy, and the new refugee policy as a whole, is that local help, i.e. the creation of a safe, sustainable and dignified quality of life on site, is many times better than accepting, or even promoting dangerous irregular long distance migration, which mainly only brings disadvantages for both sides.

In order to fulfil this task, Germany should not participate in military interventions, regime change operations and sanctions against these countries and should increase its “late impact” development aid the Near Eastern and African region. Here one can see how the policy recommendations proposed above in the areas of defence, sanctions and ODA match with the tasks of such an innovated migration policy.

As already estimated, the lifting of sanctions and the proposed increase in ODA in relation to the main donor countries for migration would reduce the pressure to emigrate from those regions to Germany by 10.5 percent. If other European countries were to participate in such an approach, the potential effect would of course be greater. If all EU member states were to lift their sanctions against these countries, this alone would reduce the yearly emigration rate from Syria, Afghanistan, Iran, etc. to Germany by 2.4 percent.

Such a new approach would also include official cooperation with the legitimate governments of the refugee donor countries. E.g., instead of financially supporting subversive terrorist groups, such as in the Syrian city of Idlib[45], the German Federal Government should recognize the rightful government in Damascus and work with it on a peaceful solution to end the civil war as quickly as possible and thus enable the safe return of Syrian refugees. It was precisely on this topic that Syrian President Bashar-Al-Assad organized an international high-level conference in November 2020. Unfortunately, the European Commission declined his invitation.[46]

Together with other willing states, Germany should actively support the post-war economic and infrastructural reconstruction of Syria and thus also strive for a preferential long-term investment partnership with Damascus.

The above-mentioned rethinking of the national refugee policy in no way means a principal opposition to the immigration of foreigners to Germany per se. On the contrary.

A recent study by the IW Cologne predicts that due to demographic change, the domestic labour market will lack between 3.1 and 4.2 million qualified skilled workers by 2040.[47]

Among other things, an important solution to this problem would be measures that would make the return of emigrated German skilled workers attractive.

According to surveys by the Federal Statistical Office, no less than 1.3 million German nationals left Germany between 2014 and 2019. That is an average of 225.000 German emigrants per year.[48]

Most of the people who leave are the so much needed skilled workers at their prime working age. This is shown by a representative study by the Federal Institute for Population Research, according to which 70 percent of German emigrants are academics and the majority are between 20 and 40 years old. The majority of expats leave Germany to advance their own careers and improve their standard of living. After leaving, their personal monthly net earnings increase by an average of almost 1200 euros.[49]

The question of how best to encourage the return of emigrated German skilled workers is a complex one that cannot be solved by any single measure, because ultimately it affects the competitiveness of Germany as location for business and living. But the above-mentioned study suggests that high tax levies are a significant deterrent for attracting high-skilled workers. According to the OECD, Germany has the second-highest tax burden on labour in the world at 49.4 percent of gross wages on average. Therefore, Berlin could consider reducing the average wage tax burden to the level of the USA and the United Kingdom of around 30 percent.[50]

Even if it were possible to partially stop and reverse the ongoing brain drain, this would not be enough to remedy the shortage of skilled workers. That is why the immigration of trained specialists from abroad is also necessary.

In this regard, the ifo Institute has developed a good design proposal for a new immigration concept for foreign skilled workers. The new system consists of a market-based immigration channel, which guarantees that immigrant workers are net contributors to the welfare state, and a potential-oriented points system based on the Canadian and Australian immigration models, which grants potential immigrants who meet certain criteria (language skills, educational level, etc.) with a temporary residence and work permit. Another component is the recognition of foreign educational certificates for certain professions, e.g. in the MINT area. According to the researchers, the new system should be set up as an online portal that provides extensive information for potential applicants and is used to process applications.[51]

Total fiscal and welfare benefits

All in all, such an alternative foreign policy proposed for Germany would then make up only 2.4 percent of GDP on average, which, compared to the current status quo of 2.8 percent of GDP, would constitute budgetary and welfare savings of almost 14 bln euros and would make every German net taxpayer 365 euros richer each year.

The reorientation of German foreign policy presented above and the associated improvement in international relations with Russia, China, the African states, as well as other countries also offer the opportunity for a far-reaching region-to-region free trade initiative. According to a review by the MIWI Institute of relevant trade simulations, the conclusion of free trade agreements between with the Eurasian Economic Union, the United States, the African Union, ASEAN, and MERCOSUR could increase the export-dependent national welfare of Germany by a remarkable 4.1 percent.[52]

Coupled with such a comprehensive free trade initiative, the proposed reorientation of Berlin’s foreign policy would make every German net taxpayer almost 4.000 euros richer every year.

Chart 2. Economic costs and benefits of an alternative German foreign policy (annual average for 2014-2019, in relation to GDP)

Source MIWI Institute.

Notes

[1] Measured in this policy note as all taxpayers minus employees of public employers, based on data from the German Federal Statistics Office.

[2] Youssef N., Gordon M. (2018). NATO’s 2% Target: Why the U.S. Pushed Allies to Spend More on the Military. WSJ. URL: https://www.wsj.com/articles/natos-2-target-why-the-u-s-pushed-allies-to-spend-more-on-the-military-1531437133

[3] NATO (2021). Funding NATO. URL: https://www.nato.int/cps/en/natohq/topics_67655.htm

[4] Korybko A. (2015). Hybrid Wars: The Indirect Adaptive Approach To Regime Change. ISSP. URL: https://orientalreview.org/wp-content/uploads/2015/08/AK-Hybrid-Wars-updated.pdf

[5] BMF (2021). Bundeshaushalt 2019. URL: https://www.bundeshaushalt.de/#/2019/soll/ausgaben/einzelplan.html

[6] Herszenhorn D. (2019). Trump threatens to punish Germany over military spending. Politico. URL: https://www.politico.eu/article/donald-trump-threatens-germany-military-spending/

[7] Bardt H. (2021). Hohe Friedensdividende und niedrige NATO-Quote. IW Köln. URL: https://www.iwkoeln.de/studien/iw-trends/beitrag/hubertus-bardt-hohe-friedensdividende-und-niedrige-nato-quote-500206.html

[8] Deutscher Bundestag (2018). Sanktionen der Bundesrepublik Deutschland gegen Drittstaaten. URL: https://www.bundestag.de/resource/blob/568274/257a1eb646467e1e33d595696f61c3e1/WD-2-094-18-pdf-data.pdf | Ukraine is not counted by the author, since the western sanctions are not directed against Ukraine, but against individuals and companies in Crimea and the Donbas region.

[9] Chowdry S., Felbermayr G., et. al. (2020). The Economic Costs of War by Other Means. IfW Kiel. URL: https://www.ifw-kiel.de/publications/kiel-policy-briefs/2020/the-economic-costs-of-war-by-other-means-15301/

[10] Hinz J. (2017). The Cost of Sanctions: Estimating Lost Trade with Gravity. IfW Kiel. URL: https://www.ifw-kiel.de/fileadmin/Dateiverwaltung/IfW-Publications/Julian_Hinz/the-cost-of-sanctions-estimating-lost-trade-with-gravity/kwp_2093.pdf

[11] Felbermayr, G., A. Kirilakha, C. Syropoulos, E. Yalcin, and Y.V. Yotov. (2020). The Global Sanctions Data Base. European Economic Review, Volume 129. URL: https://ideas.repec.org/p/ris/drxlwp/2020_002.html

[12] Where X^ij is merchandise trade flow trade flow from exporter i to importer j; DIST^ij is the population-weighted distance between i and j; CNTG^ij is a contiguity dummy; BRDRij is a border / international trade dummy; COMCUR^ij is a dummy if the exporter i and importer j share a common currency; FTAplus^ijis a dummy if the exporter i and importer j are part of a deep free trade agreement; CUplus^ijis a dummy if the exporter i and importer j are part of a customs and economic union; MILSANCT^ij is a dummy for a military assistance sanction from the exporter i on the importer j; TRADESANCT^ij is a dummy for a trade sanction from the exporter i on the importer j; FINSANCT^ij is a dummy for a financial sanction from the exporter i on the importer j; TRAVSANCT^ij is a dummy for a travel sanction from the exporter i on the importer j; pⁱis the exporter fixed effects; c^j is the importer fixed effects; e^ij is the error term.

The counterfactual scenario is implemented by setting the respective sanctions dummies from one to zero.

A more detailed description of the methodology and of the other datasets used can be found here: Kofner Y. (2021). Trade and welfare effects of European core country unification. MIWI Institute. URL: https://miwi-institut.de/archives/866

[13] Flach L., Larch M., Yotov Y., et al. (2020). Die volkswirtschaftlichen Kosten der Sanktionen in Bezug auf Russland. ifo Institut. URL: https://www.sihk.de/servicemarken/presse/pressemeldungen/dezember2020/sihk-russland-sanktionen-kosten-5-45-milliarden-euro-pro-jahr-4979864

[14] Timoveef I. (2020). The European paradox: US sanctions policy on EU businesses. MGIMO University. URL: https://russiancouncil.ru/analytics-and-comments/analytics/evropeyskiy-paradoks-politika-sanktsiy-ssha-v-otnoshenii-biznesa-stran-es/

[15] OECD (2021). Net ODA. URL: https://data.oecd.org/oda/net-oda.htm

[16] BAMF (2020). Das Bundesamt in Zahlen 2020. Asyl. URL: https://www.bamf.de/SharedDocs/Anlagen/DE/Statistik/BundesamtinZahlen/bundesamt-in-zahlen-2020-asyl.pdf?__blob=publicationFile&v=3

[17] BAMF (2019). Migrationsbericht der Bundesregierung 2019. URL: https://www.bamf.de/SharedDocs/Anlagen/DE/Forschung/Migrationsberichte/migrationsbericht-2019.pdf?__blob=publicationFile&v=13

[18] Vine D. (2020). Creating Refugees: Displacement Caused by the United States’ Post 9/11 Wars. Brown University. URL: https://watson.brown.edu/costsofwar/files/cow/imce/papers/2020/Displacement_Vine%20et%20al_Costs%20of%20War%202020%2009%2008.pdf

[19] Eurostat (2021). Asylum and first time asylum applicants. URL: https://ec.europa.eu/eurostat/databrowser/view/migr_asyappctza/default/table?lang=en

[20] UNDP (2019). Scaling Fences: Voices of Irregular African Migrants to Europe. URL: https://www.undp.org/content/undp/en/home/librarypage/democratic-governance/ScalingFences.html

[21] Author’s calculations using statistics by the Federal Office for Migration and Refugees and: Deutscher Bundestag (2020). Antwort der Bundesregierung auf die Kleine Anfrage der Fraktion DIE LINKE. Drucksache 19/17096. URL: https://dip21.bundestag.de/dip21/btd/19/182/1918201.pdf

[22] AfD-Fraktion im Hessischen Landtag (2020). Wie es wirklich um Deutschland steht. Fakten statt Fake News. URL: https://www.afd-fraktion-hessen.de/faktensammlung

[23] BA (2020). Auswirkungen der Migration auf den deutschen Arbeitsmarkt. URL: https://statistik.arbeitsagentur.de/DE/Navigation/Statistiken/Statistiken-Nav.html

[24] E.g. Hagelüken A. (2019). Deutschland braucht die Flüchtlinge. Süddeutsche Zeitung. URL: https://www.sueddeutsche.de/politik/fluechtlinge-integration-arbeitsmarkt-1.4587212

[25] Brücker H. (2017). Integration in Arbeitsmarkt und Bildungssystem macht weitere Fortschritte. IAB. URL: http://doku.iab.de/kurzber/2020/kb0420.pdf

[26] OECD (2013). The fiscal impact of immigration in OECD countries. URL: http://www.oecd.org/els/mig/IMO-2013-chap3-fiscal-impact-of-immigration.pdf

[27] Ruist J. (2019). The fiscal lifetime cost of receiving refugees. CREAM. URL: https://www.cream-migration.org/publ_uploads/CDP_02_19.pdf

[28] Raffelhüschen, B. (2018). Offene Grenzen oder generöser Sozialstaat: Beides geht nicht. ifo Institut. URL: http://www.cesifo-group.de/DocDL/sd-2018-18-chiemsee-konferenz-raffelhueschen.pdf

[29] See footnote 9.

[30] Bundeswehr (2021). Personalzahlen der Bundeswehr. Februar 2021. URL: https://www.bundeswehr.de/de/ueber-die-bundeswehr/zahlen-daten-fakten/personalzahlen-bundeswehr

[31] Hadem J., Kunz K. (2020). 65-jähriges Jubiläum – Bundeswehr ist keine moderne, schlagkräftige Armee. URL: https://www.swr.de/swraktuell/65-jahre-bundeswehr-100.html

[32] Schäuble W., Lamers K. (1994). Überlegungen zur europäischen Politik. CDU/CSU. URL: https://www.cducsu.de/upload/schaeublelamers94.pdf

[33] Barbiere C. (2017). France joins Commission in backing European Defence Union. Euractiv. URL: https://www.euractiv.com/section/politics/news/france-joins-commission-in-backing-europe-defence-union/

[34] EEAG Report on the European Economy (2018). All Together Now: The European Union and the Country Clubs. CESifo Group. URL: https://www.cesifo.org/DocDL/EEAG-2018.pdf

[35] Heinemann F., et al. (2017). How Europe can deliver. ZEW, Bertelsmann Stiftung. URL: https://www.bertelsmann-stiftung.de/de/publikationen/publikation/did/how-europe-can-deliver/

[36] Stehn J. (2017). Das Kern-Problem der EU. IfW Kiel. URL: https://www.ifw-kiel.de/de/publikationen/kiel-policy-briefs/2017/en/das-kern-problem-der-eu-8613/

[37] PESCO (2021). About PESCO. URL: https://pesco.europa.eu/about/

[38] Bundestag (2017). Völkerrechtliche Verpflichtungen Deutschlands beim Umgang mit

Kernwaffen. URL: https://www.bundestag.de/resource/blob/513080/c9a903735d5ea334181c2f946d2cf8a2/wd-2-013-17-pdf-data.pdf

[39] Kofner Y. (2017). Soft Occupation. Investigating America’s influence on German politics. RT Documentary. URL: https://www.youtube.com/watch?v=K8o1kjw5U3s

[40] Havlik P, Kochnev A., Pindyuk O. (2020). Economic Challenges and Costs of Reintegrating the Donbas Region in Ukraine. wiiw. URL: https://wiiw.ac.at/economic-challenges-and-costs-of-reintegrating-the-donbas-region-in-ukraine-p-5351.html

[41] Bencek D., Schneiderheinze C. (2019). More development, less emigration to OECD countries – Identifying inconsistencies between cross-sectional and time-series estimates of the migration hump. IfW Kiel. URL: https://www.ifw-kiel.de/fileadmin/Dateiverwaltung/IfW-Publications/Claas_Schneiderheinze/KWP_2145.pdf

[42] Lanati M., Thiele R. (2018). Foreign assistance and migration choices: Disentangling the channels. Economics Letters 172. URL: https://www.sciencedirect.com/science/article/abs/pii/S016517651830380X

[43] Rothfuß R. (2020). Wege aus der Migrationskrise. Leitlinien für ein exterritoriales Schutz- und Entwicklungskonzept und eine Remigrationsagenda für Europa. ID Fraktion im Europäischen Parlament. URL: https://www.id-afd.eu/wp-content/uploads/2021/02/ROTHFUSS_2020_Wege-aus-der-Migrationskrise.pdf

[44] BKA (2021). Kriminalität im Kontext von Zuwanderung. URL: https://www.bka.de/DE/AktuelleInformationen/StatistikenLagebilder/Lagebilder/KriminalitaetImKontextVonZuwanderung/KriminalitaetImKontextVonZuwanderung_node.html

[45] Heine H. (2018). Bundesregierung hilft Idlib-Rebellen in Syrien. Der Tagesspiegel. URL: https://www.tagesspiegel.de/politik/49-millionen-euro-fuer-assad-gegner-bundesregierung-hilft-idlib-rebellen-in-syrien/23247768.html

[46] Die Presse (2020). Der Westen hält Flüchtlinge von der Rückkehr nach Syrien ab. URL: https://www.diepresse.com/5895916/der-westen-halt-fluchtlinge-von-der-ruckkehr-nach-syrien-ab

[47] Geis-Thöne W. (2021). Mögliche Entwicklungen des Fachkräfteangebots bis zum Jahr 2040. IW Köln. URL: https://www.iwkoeln.de/fileadmin/user_upload/Studien/Report/PDF/2021/IW-Report_2021-Fachkraefteangebot-2040.pdf

[48] Statistisches Bundesamt (2020). Wanderungen zwischen Deutschland und dem Ausland, Zugezogene, Fortgezogene und Saldo. URL: https://www.destatis.de/DE/Themen/Gesellschaft-Umwelt/Bevoelkerung/Wanderungen/Tabellen/wanderungen-alle.html

[49] BIB (2019). Gewinner der Globalisierung Individuelle Konsequenzen von Auslandsaufenthalten und internationaler Mobilität. URL: V https://www.bib.bund.de/Publikation/2019/pdf/Policy-Brief-Gewinner-der-Globalisierung.pdf

[50] OECD (2020). Taxing Wages. URL: https://www.oecd.org/tax/tax-policy/taxing-wages-brochure.pdf

[51] Poutvaara P. et al. (2018). Qualifizierte Zuwanderung in Deutschland. Vorschlag für ein neues Zuwanderungskonzept für Fachkräfte auf Basis internationaler Erfahrungen. ifo Institut. URL: https://www.ifo.de/DocDL/ifo_Studie_Qualifizierte_Zuwanderung_IHK_Impulse.pdf

[52] Kofner Y. (2020). Benefits for Germany of a post-COVID EU region-to-region free trade initiative. MIWI Institute. URL: https://miwi-institut.de/archives/779

Tables

Tab. 1. Fiscal and welfare costs of Germany’s foreign policy (2014-2019)

	2014	2015	2016	2017	2018	2019	Average (2014-2019)
GDP (in EUR bln)	2927.4	3026.2	3134.7	3259.9	3356.4	3449.1	3192.3
Population (in mln)	81.2	82.2	82.5	82.8	83.0	83.2	82.5
thereof employed (in mln)	42.6	43.0	43.6	44.1	44.7	45.1	43.9
thereof taxpayers (in mln)	34.1	34.6	35.0	38.3	38.2	38.1	36.4
Defence expenditure (in percent of GDP)	1.1	1.1	1.1	1.2	1.2	1.3	1.2
Defence expenditure (in EUR bln)	32.2	33.3	34.5	39.1	40.3	44.8	37.4
Defence expenditure (in EUR per capita)	396.6	405.1	417.8	472.5	485.2	539.1	453
Defence expenditure (in EUR per employed)	755.2	773.5	791.6	886.2	900.5	993.7	850
Defence expenditure (in EUR per taxpayer)	943.5	962.8	984.2	1020.8	1054.0	1177.0	1024
Welfare costs of sanctions (in percent of GDP)	0.2	0.2	0.2	0.2	0.2	0.2	0.2
Welfare costs of sanctions (in EUR bln)	5.9	6.1	6.3	6.5	7.7	8.3	6.8
Welfare costs of sanctions (in EUR per capita	72.1	73.7	76.0	78.7	93.0	99.5	82
Welfare costs of sanctions (in EUR per employed)	137.3	140.6	143.9	147.7	172.6	183.5	154
Welfare costs of sanctions (in EUR per net taxpayer)	171.6	175.1	178.9	170.1	202.0	217.3	186
Official development aid (ODA) (in percent of GDP)	0.4	0.5	0.7	0.7	0.6	0.6	0.6
ODA (in EUR bln)	12.3	15.8	21.9	21.7	20.5	21.1	18.9
ODA (in EUR per capita	151.1	192.6	265.5	262.6	247.4	253.8	229
ODA (in EUR per employed)	287.7	367.8	503.0	492.6	459.3	467.8	430
ODA (in EUR per net taxpayer)	359.4	457.8	625.4	567.4	537.5	554.1	517
Fiscal costs of refugees (in percent of GDP)	0.2	0.5	1.4	1.1	1.0	0.8	0.8
Fiscal costs of refugees (in EUR bln)	6.5	15.1	44	36.9	33.4	28.2	27.4
Fiscal costs of refugees (in EUR per capita	80.1	183.8	533.2	445.7	402.3	339.1	331
Fiscal costs of refugees (in EUR per employed)	152.4	350.9	1010.1	836.0	746.8	625.0	620
Fiscal costs of refugees (in EUR per net taxpayer)	190.5	436.7	1255.9	962.9	874.0	740.3	743
Total fiscal and welfare costs (in percent of GDP)	1.9	2.3	3.4	3.2	3.0	3.0	2.8
Total fiscal and welfare costs (in EUR bln)	56.8	70.3	106.7	104.3	101.9	102.4	90.4
Total fiscal and welfare costs (in EUR per capita	699.8	855.1	1292.5	1259.6	1227.9	1231.6	1094
Total fiscal and welfare costs (in EUR per employed)	1332.6	1632.7	2448.7	2362.5	2279.1	2269.9	2054
Total fiscal and welfare costs (in EUR per net taxpayer	1665.0	2032.3	3044.4	2721.3	2667.5	2688.7	2450