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Detecting Illegal Arms Trade

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Author Info

  • Stefano DellaVigna
  • Eliana La Ferrara

Abstract

We propose a method to detect illegal arms trade based on investor knowledge. We focus on countries under arms embargo and identify events that suddenly increase or decrease conflict intensity. If a weapon-making company is trading illegally, an event that increases the demand for arms may increase stock prices. We find positive event returns for companies headquartered in countries with high corruption and low transparency in arms trade. We also suggest a method to detect potential embargo violations based on chains of reactions by individual stocks. The presumed violations positively correlate with the number of UN investigations and Internet stories. (JEL D74, F13, G14, K42, L64)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.2.4.26
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 2 (2010)
Issue (Month): 4 (November)
Pages: 26-57

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Handle: RePEc:aea:aejpol:v:2:y:2010:i:4:p:26-57

Note: DOI: 10.1257/pol.2.4.26
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References

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  1. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2006. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," NBER Working Papers 12073, National Bureau of Economic Research, Inc.
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  5. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
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  7. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
  8. Chang-Tai Hsieh & Enrico Moretti, 2005. "Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program," NBER Working Papers 11202, National Bureau of Economic Research, Inc.
  9. Saiz, Albert & Simonsohn, Uri, 2008. "Downloading Wisdom from Online Crowds," IZA Discussion Papers 3809, Institute for the Study of Labor (IZA).
  10. Stefano DellaVigna & Joshua M. Pollet, 2007. "Demographics and Industry Returns," American Economic Review, American Economic Association, vol. 97(5), pages 1667-1702, December.
  11. Justin Wolfers, 2006. "Point Shaving: Corruption in NCAA Basketball," American Economic Review, American Economic Association, vol. 96(2), pages 279-283, May.
  12. Collier, Paul & Hoeffler, Anke, 1998. "On Economic Causes of Civil War," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 563-73, October.
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  16. Justin Marion & Erich Muehlegger, 2008. "Measuring Illegal Activity and the Effects of Regulatory Innovation: Tax Evasion and the Dyeing of Untaxed Diesel," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 633-666, 08.
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Citations

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Cited by:
  1. Laurent Bouton & Paola Conconi & Francisco Pino & Maurizio Zanardi, 2013. "Guns and Votes," Working Papers ECARES ECARES 2013-39, ULB -- Universite Libre de Bruxelles.
    • Laurent Bouton & Paola Conconi & Francisco Pino & Maurizio Zanardi, 2013. "Guns and votes," Working Papers 43819146, Lancaster University Management School, Economics Department.
    • Laurent Bouton & Paola Conconi & Francisco Pino & Maurizio Zanardi, 2014. "Guns and Votes," NBER Working Papers 20253, National Bureau of Economic Research, Inc.
    • Bouton, Laurent & Conconi, Paola & Pino, Francisco & Zanardi, Maurizio, 2013. "Guns and Votes," CEPR Discussion Papers 9726, C.E.P.R. Discussion Papers.
  2. Tandon, Sharad, 2012. "Economic reform, voting, and local political intervention: Evidence from India," Journal of Development Economics, Elsevier, vol. 97(2), pages 221-231.
  3. François-Xavier Delaloye & Michel Habib & Alexandre Ziegler, 2012. "Swiss banking secrecy: the stock market evidence," Financial Markets and Portfolio Management, Springer, vol. 26(1), pages 143-176, March.
  4. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Corruption in Professional Sumo: An Update on Duggan and Levitt's Study," Working Papers 0824, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jun 2009.
  5. William Seitz, 2013. "Trade Restrictions and Conflict Commodities: Market Reactions to Regulations on Conflict Minerals from the Democratic Republic of the Congo," OxCarre Working Papers 102, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  6. Marion, Justin & Muehlegger, Erich, 2007. "Measuring Illegal Activity and the Effects of Regulatory Innovation: A Study of Diesel Fuel Tax Evasion," Working Paper Series rwp07-026, Harvard University, John F. Kennedy School of Government.
  7. William Seitz, 2012. "Stock Market Reactions to Conflict Diamond Trading Restrictions and Controversies," CSAE Working Paper Series 2012-22, Centre for the Study of African Economies, University of Oxford.
  8. Janus, Thorsten, 2012. "Natural resource extraction and civil conflict," Journal of Development Economics, Elsevier, vol. 97(1), pages 24-31.
  9. Ferrier, Peyton Michael, 2009. "The Economics of Agricultural and Wildlife Smuggling," Economic Research Report 55951, United States Department of Agriculture, Economic Research Service.
  10. Brian Knight, 2013. "State Gun Policy and Cross-State Externalities: Evidence from Crime Gun Tracing," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 200-229, November.
  11. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Corruption in Professional Sumo: An Update on the Study of Duggan and Levitt," Working Papers 0085, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jun 2009.

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