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Critically Important: The Heterogeneous Effect of Diplomatic Tensions on Trade

Author

Listed:
  • Julian Hinz

    (Kiel Institute for the World Economy, and Kiel Centre for Globalization)

  • Elsa Leromain

    (Université Catholique de Louvain
    London School of Economics)

Abstract

With global value chains interlocking today’s economies, what is the impact of diplomatic tensions on international trade? We exploit variation in monthly data on imports, a measure of imported input use in the domestic economy, and the incidence of bilateral diplomatic tensions to show that their impact on trade is heterogeneous across countries and industries. Trade in industries that are crucial for domestic production is more sensitive to political tensions. We expose the underlying mechanism in a simple framework before testing it in reduced form.

Suggested Citation

  • Julian Hinz & Elsa Leromain, 2020. "Critically Important: The Heterogeneous Effect of Diplomatic Tensions on Trade," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(2), pages 309-331, September.
    • Handle: RePEc:kap:revind:v:57:y:2020:i:2:d:10.1007_s11151-020-09769-9
    DOI: 10.1007/s11151-020-09769-9
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    Cited by:

    1. Blanga-Gubbay, Michael & Rubínová, Stela, 2023. "Is the global economy fragmenting?," WTO Staff Working Papers ERSD-2023-10, World Trade Organization (WTO), Economic Research and Statistics Division.

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    More about this item

    Keywords

    Diplomatic tensions; Political relations; Trade;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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