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The Economic Costs of Diplomatic Conflict: Evidence from the South Korea–China THAAD Dispute

Author

Listed:
  • Hyejin Kim

    (Bank of Korea)

  • Jungmin Lee

    (Seoul National University and Institute of Labor Economics (IZA))

Abstract

We examine the economic effect of the diplomatic conflict between South Korea and China that resulted from the joint decision by South Korea and the U.S. to deploy the Terminal High-Altitude Area Defense system in the Korean peninsula. Using the synthetic control method, we estimate the conflict’s effects on Chinese tourists to Korea and stock prices of China-related Korean firms. We find that a negative effect on the inflow of tourists appeared with a lag of 3 months after the announcement of the decision and persisted for approximately 18 months. By contrast, the effects on the stock market appeared immediately but were insignificant and short-lived.

Suggested Citation

  • Hyejin Kim & Jungmin Lee, 2021. "The Economic Costs of Diplomatic Conflict: Evidence from the South Korea–China THAAD Dispute," Korean Economic Review, Korean Economic Association, vol. 37, pages 225-262.
    • Handle: RePEc:kea:keappr:ker-20210701-37-2-02
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Economic Sanction; Geopolitical Events; Tourism; Stock Market; South Korea; China; Synthetic Control Method;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • Z30 - Other Special Topics - - Tourism Economics - - - General

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