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How Political Conflicts Distort Bilateral Trade: Firm-Level Evidence from China

Author

Listed:
  • Yuhua Li

    (Department of Information Management, Zhejiang University of Finance & Economics, CHINA)

  • Ze Jian

    (School of business administration, Guangdong University of Finance & Economics, CHINA)

  • Wei Tian

    (School of Ecnomics, Peking University, CHINA)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN)

Abstract

We examine how political conflicts affect trade, using both the Goldstein score that scales all political conflicts daily worldwide and the firm-country-product level data of Chinese imports. We find that political conflicts reduce Chinese imports in general. Speci cally, (i) the imports of State-owned enterprises (SOEs) are most reduced, and the effects mostly fall on imports for intermediate goods while not so much on capital goods; (ii) foreign-invested enterprises (FIEs) are less negatively affected, because most of their trade is processing, which is less negatively affected by political conflict than ordinary trade. These results are obtained via mechanisms in the mode of trade (processing vs. ordinary), variations in broad economic categories (BEC) and import boycotts and export controls.

Suggested Citation

  • Yuhua Li & Ze Jian & Wei Tian & Laixun Zhao, 2021. "How Political Conflicts Distort Bilateral Trade: Firm-Level Evidence from China," Discussion Paper Series DP2021-01, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2021-01
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    References listed on IDEAS

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    Cited by:

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    2. Shi, Wei & Wei, Jingran, 2023. "In the crossfire: Multinational companies and consumer boycotts," China Economic Review, Elsevier, vol. 77(C).
    3. Jing Li & Hongkui Liu & Qian Xie, 2023. "Bilateral Relations and Exports: Evidence from Google Big Data," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(1), pages 182-210, January.
    4. Zeng, Shuai & Luo, Changyuan & Zhao, Laixun, 2023. "Destination trade credit and exports: Evidence from cross-country panel data," Journal of International Money and Finance, Elsevier, vol. 137(C).
    5. Hayakawa,Kazunobu & Kumagai,Satoru, 2022. "The trade effect of economic sanctions: evidence from the 2022 Russia-Ukraine conflict," IDE Discussion Papers 857, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    6. Yuren Wang & Yitao Tao, 2024. "The effect of fluctuations in bilateral relations on trade: evidence from China and ASEAN countries," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-13, December.
    7. Hayakawa, Kazunobu & Ito, Keiko & Fukao, Kyoji & Deseatnicov, Ivan, 2023. "The impact of the strengthening of export controls on Japanese exports of dual-use goods," International Economics, Elsevier, vol. 174(C), pages 160-179.
    8. Yunyan Li, 2023. "The Impact of Normalised Cross-Strait Relations on Regional Economics—An Empirical Study of Jiangsu Province," Social Sciences, MDPI, vol. 12(9), pages 1-50, September.

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    More about this item

    Keywords

    Political conflicts; Trade; State-owned enterprises; Goldstein score;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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