Trade and Civil Conflicts

This paper investigates the impact of civil conflicts on international trade. First, it quantifieshow much civil conflicts suppress trade and explores theunderlying mechanisms within a structural gravity model. Trade openness can lower the risk of civil conflicts becauseexpected gains from international trade could discourage both governments and rebels from igniting conflicts(deterrence mechanism). Alternatively, international trade could act as a substitute for internal trade, lowering theopportunity cost of civil conflicts (insurance mechanism). This paper empirically investigates both mechanisms. Second,the paper investigates the spillovers of civil conflicts on trade for neighboring countries uninvolved in the conflict.Third, it examines if the impact of civil conflicts is contemporaneous or persistent through time. The paper usesdata on violent civil conflicts and international and intra-national trade data from 142 countries to estimate astructural gravity trade model for 1989-2006. The results show that civil conflicts in a country can reduce its tradewith other countries by over 40 percent. Spillovers of neighboring civil conflicts are also highly detrimental.Finally, the impact of civil conflicts is highly persistent through time and increases with the duration of the conflict.