The Impact of Conflict on Trade Evidence from Panel Data Katrin Kamin 19th International Conference on Economics and Security June 2015, Grenoble
Motivation [ ] the impact of peace is greater than the impact from either multilateral or bilateral trade agreements [ ] [ ] the negative impact of conflict is greater than language and border effects. Blomberg and Hess (2006) 1 Introduction 2
Conflicts impact on trade Pollins (1989): cooperative diplomatic relations have a positive impact on trade Gowa and Mansfield (1993): alliances promote trade estimations might be biased because of bilateral specific effects Morrow et al. (1998): interstate war, democracy & political alliances variables colinearity problem between war and alliance variable Martin et al. (2008): negative & significant effect is persistent over time Glick and Taylor (2010): negative effect on trade regardless of being belligerent or neutral Blomberg and Hess (2006): impact of violence (terrorism, external war, revolutions, interethnic fighting) on trade: 30% 1 Introduction 3
Trade data Bilateral, current trade data for 195 countries, for 1992 2011 (source: COMTRADE) Trade Countries Countrypair Total trade value in 1000 US $ GDP of exp / imp in current US$ Common language Colonial relationship Distance 2 Data 4
Conflict data Uppsala Conflict Data Program, Uppsala University, 2014 Information on: location, actors, supporters, year, intensity, start, end Armed conflict use of armed force between two parties; at least one party is the government of a state Nonstate conflict use of armed force between two organized armed groups; neither is the government of a state Onesided violence use of armed force by the government of a state or by a formally organized group against civilians Armed conflict Nonstate conflict Onesided violence # of incidents 120 414 206 # of countries/ actors 137 59 74 2 Data # total events (conflictyearcombination) 761 633 660 5
The Gravity Equation Newton s Law of Universal Gravitation F ij = G M im j D ij θ F ij is the attractive force M i and M j are the masses D ij is the distance between the two objects G is a gravitational constant Jan Tinbergen (1962) F ij = G M i α M j β D ij θ F ij trade flows from i to j M i and M j are the economic masses D ij distance between the two locations G is a constant (equal to Newton s law if α = β = 1 and θ = 2) 3 Model 6
Estimation equation I log Exports ij = β 0 + β 1 log GDP i + β 2 log GDP j + β 3 Conflict Variable i + β 4 Conflict Variable j + γ ij + δ ij + ε Exports ij GDP i, GDP j Conflict Variable i, Conflict Variable j γ ij δ ij ε Total trade value between i and j GDP of i, GDP of j Dummy defining whether i/j are in conflict in the given year Countrypair specific fixed effect Year fixed effect Errorterm 4 Results 7
Results I Conflicts general Variable significance coefficient % change in trade in conflict in conflict *** 0.56 +5,7% 4 Results 8
Results II Types of conflict Variables significance Coef. % change in trade armed conflict armed conflict nonstate conflict nonstate conflict onesided violence onesided violence *** 0.093 +9,75 * 0.024 2,37 ** 0.034 3,34 4 Results 9
Results III Armed Conflict & intensity subsets Variables significance Coef. % change in trade one armed conflict multiple armed conflicts high # of armed conflicts one armed conflict multiple armed conflicts high # of armed conflicts *** 1,116 67,24 *** 0,106 +11,18 *** 0,048 +4,91 *** 0,549 42,24 4 Results 10
Results III Nonstate conflict & intensity subsets Variables significance Coef. % change in trade one nonstate conflict multiple nonstate conflicts high # of nonstate conflicts one nonstate conflict multiple nonstate conflicts high # of nonstate conflicts * 0,363 30,44 ** 0,114 +12,07 *** 0,049 4,78 * 0,079 +8,22 4 Results 11
Results III Onesided violence & intensity subsets Variables significance Coef. % change in trade One onesided violence multiple onesided violence high # of onesided violence one onesided violence multiple onesided violence high # of onesided violence *** 0,049 4,78 4 Results 12
Estimation equation II log Exports ij = β 0 + β 1 log (dist ij ) + β 2 Relationship Variable ij + β 3 Contiguity ij + β 4 Common Language ij + β 5 Colonial Relationship ij + ρ i + ρ j + ε Exports ij dist ij Relationship Variable ij Contiguity ij Common Language ij Colonial Relationship ij ρ i, ρ j ε Total trade value between i and j Distance between i and j Dummy for relationship status of i and j in given year Dummy for i and j sharing border Dummy for i and j having common official language Dummy for colonial relationship between i and j Country fixed effect (incl. time dimension) Errorterm 4 Results 13
Results I Relationship general Variables significance Coef. %change in trade Enemy *** 1,864 84,49 Ally 4 Results 14
Results II Relationship specified Variables both main actors significance Coef. %change in trade Allies both supporters * 0,046 +4,70 importer supports exporter *** 0,793 54,75 exporter supports importer *** 0,726 51,61 both main actors *** 3,079 95,39 Enemies both supporters importer supports enemy exporter supports enemy * 1,18 69,39 4 Results 15
Interpretation of results Estimation I Armed conflict only negative effect (67%) on exporter side if # of conflicts is high Positive effect on importer side, as long as # of conflicts is low, otherwise trade losses of up to 42% Nonstate conflict For exporter (30%) and importer (4.8%) negative and large, if in one conflict For both positive if in a high # of conflicts (12% and 8% respectively) Onesided violence Does not affect exporter Only affects importer negatively if country is involved in one conflict (4,8%) 4 Results 16
Interpretation of results Estimation II Armed conflict Being enemies has a large negative impact on trade flows of up to 95% Being allies yields as well huge trade losses of more than 50% 4 Results 17
Outlook Intensity variable Decompose trade volume into commodities Introduce lagged variables Other estimation methods Thirdcountry and welfare effects 5 Outlook 18
Thank you for your attention!
Literature I Anderson and Marcouiller, (2002): Insecurity and the pattern of trade. Review of Economics and Statistics 84(2) Blomberg and Hess (2006): How much does violence tax trade? Review of Economics and Statistics 88(4) Bussmann (2010): Foreign direct investment and militarized interstate conflict. Journal of Peace Research 47(2) Chang, Polachek, Robst (2004): Conflict and Trade: The relationship between geographic distance and international interactions. Journal of Socioeconomics 33(4) Collier (1999): On the economic consequences of civil wars. Oxford Economic Papers 51(1) de Groot, Linders, Rietveld, Subramanian (2004): The institutional determinants of bilateral trade patterns. Kyklos 57(1) Glick and Taylor (2010): Collateral damage: Trade disruption and the economic impact of war. Review of Economics and Statistics 92(1) Görg, Meyer, de Rosa (2013): Economic Mass, Geography and Economic Policy: Implications for Eurasian Trade Gowa and Mansfield (1993): Power politics and international trade. The American Political Science Review 87(2) Hegre et al. (2010):Trade does promote peace: New simultaneous estimates of the reciprocal effects of trade and conflict. Journal of Peace Research 47(6) 20
Literature II Knight, Loayza, Villanueva (1996): The peace divident: Military spending cuts and economic growth. IMF Staff Papers 43(1) Lamotte (2012): Disentangling the impact of wars and sanctions on international trade: Evidence from former Yugoslavia. Comparative Economic Studies 27(1) Limao, Venables (2001): Infrastructure, geographical disadvantage, transport costs and trade. World Bank Economic Review 15(3) Martin, Mayer, Thoenig (2008): Make trade not war? Review of Economic Studies 75(3) Morrow, Siverson, Tabares (1998):The political determinants of international trade: The major powers. American Political Science Review 92(3) Polachek (1978): Dyadic dispute: An economic perspective. Papers of the peace science society 28(1) Polachek (1980): Conflict and Trade. Journal of Conflict Resolution 24(1) Pollins (1989a): Does trade follow the flag? American Political Science Review 83(2) Pollins (1989b): Conflict, cooperation and commerce: The effect of international political interactions on bilateral trade flows. American Journal of Political Science 33(3) 21