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How Political Conflicts Distort Bilateral Trade: Firm-Level Evidence from China

Yuhua Li, Ze Jian, Wei Tian and Laixun Zhao
Additional contact information
Yuhua Li: Department of Information Management, Zhejiang University of Finance & Economics, CHINA
Ze Jian: School of business administration, Guangdong University of Finance & Economics, CHINA
Wei Tian: School of Ecnomics, Peking University, CHINA

No DP2021-01, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We examine how political conflicts affect trade, using both the Goldstein score that scales all political conflicts daily worldwide and the firm-country-product level data of Chinese imports. We find that political conflicts reduce Chinese imports in general. Speci cally, (i) the imports of State-owned enterprises (SOEs) are most reduced, and the effects mostly fall on imports for intermediate goods while not so much on capital goods; (ii) foreign-invested enterprises (FIEs) are less negatively affected, because most of their trade is processing, which is less negatively affected by political conflict than ordinary trade. These results are obtained via mechanisms in the mode of trade (processing vs. ordinary), variations in broad economic categories (BEC) and import boycotts and export controls.

Keywords: Political conflicts; Trade; State-owned enterprises; Goldstein score (search for similar items in EconPapers)
JEL-codes: F1 F51 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2021-01
New Economics Papers: this item is included in nep-cna, nep-cwa, nep-int and nep-pol
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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2021-01.pdf First version, 2021 (application/pdf)

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