Hurting without Hitting: The Economic Cost of Political Tension

YingHua He, Ulf Nielsson and Yonglei Wang

No 14-484, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Political tension causing diplomatic strains rarely escalates into direct violence or war. This paper identifies the economic effects of such non-violent political tension by examining Taiwan’s sovereignty debate. Non-violent events harming the relationship with mainland China lead to an average daily drop of 200 basis points in Taiwanese stock returns. The impact is more severe on firms openly supporting the Taiwanese pro-independence party. Through a series of tests we identify this economic penalty as initiated by mainland authorities, who specifically target political opponents that are economically exposed to mainland China via either investments or exports.

Keywords: political tension; political connections; China; Taiwan (search for similar items in EconPapers)
JEL-codes: F51 G14 G15 (search for similar items in EconPapers)
Date: 2014-04, Revised 2015-07
New Economics Papers: this item is included in nep-cdm and nep-pol
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Citations: View citations in EconPapers (1)

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Journal Article: Hurting without hitting: The economic cost of political tension (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:28077

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