Trade effects of political conflicts

ABSTRACT

We review China–Korea conflict that broke out in July 2016 and examine the effects on China’s imports from Korea. We find that the trade deterioration effects vary over the stages of the conflicts China’s imports from Korea were not significantly affected in the first few months after July 2016. Trade deterioration effects manifested themselves after February 2017 and the estimates show that China’s imports from Korea reduced by 15%. Our results support the viewpoint that, in order to influence the political position of trading partners, the government may take advantage of trade ties.

KEYWORDS:

• Political conflicts
• trade

JEL CLASSIFICATION:

• E65
• F14
• F19

Acknowledgments

Wan acknowledges the financial support from the Shanghai Start-up Research Grant for Youth University Teachers (No. ZZsuibe18002). Lian acknowledges the financial support from the Fundamental Research Funds for the Central Universities (2016AD012). The Fundamental Research Funds for the Central Universities (2016QD012) and the National Social Science Fund of China (17GBQY026).

Notes

¹ To name a few, Canhui Hong, Wei-Min, and Zhu (2011); Clerides, Davis, and Michis (2015); Pandya and Venkatesan (2016).

² We also estimate the model that includes the interaction terms of both periods with Korea dummy:

Additional information

Funding

This work was supported by the Shanghai Start-up Research Grant for Youth University Teachers [ZZsuibe18002]; The National Social Science Fund of China [17GBQY026]; Fundamental Research Funds for the Central Universities [2016QD012].