Brothers in Arms, Brothers in Trade? Measuring the Effect of Violent Conflicts on Trade with Third-Party Countries

The question about the relationship between violent conflicts and international trade has a long tradition, and empirical research in the 1990s and early 2000s has established that violent interstate conflicts do harm international trade. While most of this literature dates back at least 10 to 20 years, the effect of interstate conflicts on trade with thirdparty countries has been neglected for most of the time in the literature. In this paper, I attempt to fill this gap. A period of 46 years is covered in the analysis, using more than 500 thousand dyad-year observations. The third-party country dimension is derived from a triadic data set, which covers all possible country-triad combinations for the studied period. I find that violent interstate conflicts reduce trade with third-party countries, and that they cause a shift in trade towards allied countries and away from the enemy’s allies. Countries increase imports from members of the same security alliance by between 1 and 4 percent, and trade more with countries that have the same enemies by between 5 and 7 percent. They reduce trade with the formal allies of their enemies by between 9 and 14 percent. This negative trade shifting effect is further amplified by the size of the respective conflict country. This paper contributes to the literature on conflict and trade in two ways: First, by adding to the scarce literature introducing a third-country dimension into standard gravity models and into the literature on conflict and trade. And second, by showing the importance of a spatially dynamic perspective on interstate conflicts