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The Economic Costs of Diplomatic Conflict

Author

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  • Hyejin Kim

    (Economic Research Institute, Bank of Korea)

  • Jungmin Lee

    (Department of Economics, Seoul National University)

Abstract

We examine the economic impact of the diplomatic conflict using the THAAD crisis between South Korea and China as a case study. Using the synthetic control method, we estimate the conflict¡¯s impacts 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 about 18 months. On the other hand, the impacts on the stock market appeared immediately, but insignificant and short-lived.

Suggested Citation

  • Hyejin Kim & Jungmin Lee, 2020. "The Economic Costs of Diplomatic Conflict," Working Papers 2020-25, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:2025
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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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