War and Third-party Trade

Nizan Feldman and Tal Sadeh

Journal of Conflict Resolution, 2018, vol. 62, issue 1, 119-142

Abstract: Few studies explain how wars affect trade with third parties. We argue that wartime trade policies should raise trade with friendly and enemy-hostile third parties but reduce trade with hostile and enemy-friendly third parties. At the same time, the private motivation of firms and households may be incompatible with national wartime trade policies and constrain the effectiveness of wartime trade policies. Our directed dyadic data set consists of almost all of the states from 1885 to 2000. Running a high definition fixed effects regression with two-way clustering of standard errors, we find that hostile third parties tended to reduce trade with a combatant state by roughly 30 percent. In addition, trade with third parties friendly to the enemy fell by a similar magnitude. In contrast, on average, war hardly affected trade with third parties because of substitution of war-ridden markets with third-party business partners.

Keywords: trade; political economy; militarized interstate disputes; interstate conflict (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:sae:jocore:v:62:y:2018:i:1:p:119-142

DOI: 10.1177/0022002716644329

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