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Trade and Thy Neighbor's War

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  • Mahvash Saeed Qureshi

Abstract

This paper examines the spatial dispersion effects of regional conflicts, defined as internal or external armed conflicts in contiguous states, on international trade. Our empirical findings-based on different measures of conflict constructed using alternate definitions of contiguity and conflict-reveal a significant collateral damage in terms of foregone trade as a result of spillovers from conflict in neighboring countries. The magnitude of this negative externality is somewhat larger for international conflicts than intrastate warfare, but about one-third of conflict in the host economies. Further, the impact is persistent-on average, it takes bilateral trade three years to recover from the end of intrastate conflicts in neighboring states, and five years from international conflicts. These findings are robust to alternate definitions of conflict, estimation methods, and specifications, and underscore the importance of taking into account spillover effects when estimating the economic costs of warfare.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/283.

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Length: 51
Date of creation: 01 Dec 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/283

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Keywords: Economic models; Regional shocks; bilateral trade; international conflict; international conflicts; trade flows; civil war; international trade; neighboring countries; bilateral trade flows; armed conflict; trading partners; trade costs; intrastate conflict; trading partner; civil wars; trade agreements; free trade; armed conflicts; intrastate conflicts; transport costs; interstate conflicts; free trade agreements; country of origin; dynamic effects; internal conflict; political economy; trade agreement; negative spillovers; military conflicts; regional trade; trade routes; elasticity of substitution; world trade; trading costs; world output; world economy; export supply; trade data; external trade; international armed conflict; multilateral trade; free trade agreement; constant elasticity of substitution; trade effect; domestic prices; civil conflict; trade models; import bans; ethnic conflict; importing country; post-conflict; trade effects; trade losses; trade disruption; trade dependence; preferential trading; income distribution; positive externalities; value of exports; economic interdependence; trade openness; bilateral trade data; trading arrangements; regional trade agreements; economic integration; global markets; preferential trading arrangements; world trade organization;

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