Gainers and Losers of Political Instability: Evidence from the Anti-Japanese Demonstration in China

This paper quantifies the Chinese consumers’ boycott of Japanese cars that immediately followed the anti-Japanese demonstration in September 2012.We decompose the total boycott effect into cancel effect and transfer effect. We find that the temporary cancellation of orders by potential buyers accounts for more than 90% of the total decline in Japanese car sales. Such results indicate that Japanese car makers lost these customers only for the short-run. European, Korean, American, and Chinese cars became the dominant substitutes for lost Japanese sales; Chinese brands benefited the least. This paper provides evidence of both negative and positive impacts of political conflicts for different market participants and includes analysis of welfare implications.