How does violent conflict affect third- country trade? Evidence from a big data analysis in a triadic country setting. Helge Zille UNU-WIDER Nordic Conference on Development Economics June 12 th 2018
Literature • Long tradition in political sciences (International Political Economy) • Focus on the effect of trade on peace and conflict • On the effect of conflict on trade • Much more scarce • Important studies: Li & Sacko (2002), Long (2008), Keshk et al. (2010) • Conflict reduces trade Effect on third countries • No systematic research • Trade shifting to secondary neighbors (De Groot 2010) • Trade shifting as a way of sanction busting (Caruso 2003)
Theory • Practical consequences of conflict trade A B • Destruction conflict • Reallocation of capital • Costs and risks • Active decisions trade • Sanctions, boycotts A B • Third-country trade conflict • Trade shifting • Spillovers • Active decisions C
Relationship Constellations trade trade trade A B A B A B neighbors conflict conflict conflict C C C trade trade trade A B A B A B alliance dependence conflict conflict conflict C C C
Relationship Constellations trade trade trade A B A B A B neighbors conflict conflict conflict C C C • Geographic • Trade as a non- • Trade as a non- distance as a strong military measure to military measure to predictor of trade support allies support allies • Costs of creating • Mutual support foreign contacts • Costs of interaction • Harming the with contacts common enemy
Data I • International Crisis Behavior Project (ICB) • Interstate conflicts on a dyadic level from 1918 to 2013 • Correlates of War (COW) • Imports and exports on a dyadic level from 1870 to 2014 • Contiguity and formal security alliances • Maddison Project • GDP data from 1820 to 2008 • World Development Indicators (WDI) • GDP data from 1960 to 2017
Data II • Country triads instead of country dyads • 201 countries • 40,200 dyads • 7,999,800 triads • 96 years • 767,980,800 triad-year observations (potentially!) • Missing data • About 100 million triad-year observations
Estimation Strategy I 𝑧 𝑗𝑢 = 𝐶 𝑦 𝑌 𝑗𝑢−1 + 𝜃 𝑗 + 𝜁 𝑗𝑢 • 𝑧 𝑗𝑢 dyadic trade in year t • 𝐶 𝑦 vector of coefficients • 𝑌 𝑗𝑢−1 vector of time-variant regressors (conflict, GDP, previous trade, relationship variables) • 𝜃 𝑗 latent time-invariant variables • 𝜁 𝑗𝑢 triad-specific error term (iid)
Estimation Strategy II 𝑚𝑜 dtrade 𝑏𝑐𝑢 = 𝛾 0 + 𝛾 1 𝑚𝑜 dtrade 𝑏𝑐𝑢−1 + 𝛾 2 𝑚𝑜 GDP 𝑏𝑢−1 + 𝛾 3 𝑚 𝑜 GDP 𝑐𝑢−1 + 𝛾 4 𝑚 𝑜 GDP 𝑑𝑢−1 + 𝛾 5 MID 𝑏𝑐𝑢−1 + 𝛾 6 MID 𝑏𝑑𝑢−1 + 𝛾 7 MID 𝑐𝑑𝑢−1 + 𝛾 8 rel 𝑏𝑐𝑢−1 + 𝛾 9 rel 𝑏𝑑𝑢−1 + 𝛾 10 rel 𝑐𝑑𝑢−1 + 𝛾 11 (MID 𝑏𝑑𝑢−1 ∗ rel ℎ𝑢−1 ) + 𝜁 𝑏𝑐𝑑𝑢 • dtrade 𝑏𝑐𝑢 sum of imports and exports between A and B in t • dtrade 𝑏𝑐𝑢−1 sum of imports and exports between A and B in t-1 • GDP 𝑗𝑢−1 GDP of countries A, B, and C in t-1 • MID 𝑗𝑘𝑢−1 violent conflict between the different country pairs in t-1 • rel 𝑗𝑘𝑢−1 relationship variable between the different country pairs in t-1 • MID 𝑏𝑑𝑢−1 ∗ rel ℎ𝑢−1 interaction term for conditional effect
Conflict, trade, and alliances (1) (2) (3) (4) VARIABLES log trade AB log trade AB log trade AB log trade AB trade A B log GDP A, B 0.542*** 0.601*** 0.525*** 0.530*** (0.000447) (0.000499) (0.000541) (0.000600) log GDP C 0.0171*** 0.0583*** 0.000112 2.95e-05 (0.000390) (0.000441) (0.000449) (0.000503) conflict MID AB -0.861*** -0.870*** -0.817*** -0.860*** (0.00417) (0.00575) (0.00416) (0.00573) MID AC -0.132*** -0.116*** -0.116*** -0.0985*** (0.00481) (0.00648) (0.00478) (0.00646) MID BC -0.138*** -0.124*** -0.123*** -0.108*** C (0.00459) (0.00618) (0.00457) (0.00616) alliance AB 0.134*** 0.139*** 0.119*** 0.139*** (0.00109) (0.00135) (0.00109) (0.00135) alliance AC, BC -0.0104*** 0.00988*** -0.0257*** 0.0151*** (0.00122) (0.00153) (0.00123) (0.00153) MID AC * alliance BC -0.0747*** -0.0855*** -0.0800*** -0.113*** (0.0161) (0.0212) (0.0160) (0.0212) log trade AB 0.558*** 0.490*** 0.554*** 0.487*** (9.01e-05) (8.69e-05) (9.05e-05) (8.71e-05) Constant -10.95*** -12.55*** -9.261*** -10.79*** (0.00348) (0.00414) (0.0913) (0.00964) Full effect of violent conflict AC -19.56% -19.15% -18.64% -20.07% Observations 84,187,954 101,005,598 84,187,954 101,005,598 Maddison sample YES - YES - WDI sample - YES - YES Year dummies - - YES YES Standard errors in parentheses *** p<0.001, ** p<0.005, * p<0.01
Multiple conflicts and trade (1) (2) (3) (4) VARIABLES log trade AB log trade AB log trade AB log trade AB trade A B log GDP A, B 0.542*** 0.601*** 0.524*** 0.527*** (0.000447) (0.000498) (0.000541) (0.000599) conflict log GDP C 0.0185*** 0.0604*** 0.000201 -5.61e-05 (0.000390) (0.000440) (0.000449) (0.000503) MID AB -0.863*** -0.874*** -0.818*** -0.865*** (0.00417) (0.00574) (0.00416) (0.00572) MID AC -0.158*** -0.134*** -0.140*** -0.118*** C (0.00471) (0.00630) (0.00469) (0.00628) MID BC -0.158*** -0.134*** -0.140*** -0.118*** (0.00471) (0.00630) (0.00469) (0.00628) MID AC * MID BC 0.390*** 0.256*** 0.342*** 0.235*** (0.0208) (0.0317) (0.0207) (0.0315) log trade AB 0.559*** 0.490*** 0.554*** 0.487*** (9.01e-05) (8.69e-05) (9.05e-05) (8.71e-05) Constant -10.96*** -12.57*** -9.243*** -10.73*** (0.00346) (0.00413) (0.0914) (0.00963) Full effect of violent conflict AC 33.08% 16.63% 27.71% 15.36% Observations 84,187,954 101,005,598 84,187,954 101,005,598 Maddison sample YES - YES - WDI sample - YES - YES Year dummies - - YES YES Standard errors in parentheses *** p<0.001, ** p<0.005, * p<0.01
Conflict, trade, and contiguity (1) (2) (3) (4) VARIABLES log trade AB log trade AB log trade AB log trade AB trade log GDP A, B 0.542*** 0.601*** 0.524*** 0.527*** A B (0.000447) (0.000498) (0.000542) (0.000599) log GDP C 0.0187*** 0.0604*** 0.000277 -1.48e-05 neighbors (0.000390) (0.000440) (0.000449) (0.000503) MID AB -0.864*** -0.874*** -0.820*** -0.865*** conflict (0.00417) (0.00574) (0.00416) (0.00572) MID AC -0.147*** -0.130*** -0.132*** -0.114*** (0.00476) (0.00635) (0.00473) (0.00633) MID BC -0.138*** -0.125*** -0.123*** -0.110*** (0.00459) (0.00618) (0.00457) (0.00616) C contiguity AB 0.0754*** -0.154*** 0.0922*** -0.159*** (0.00569) (0.0109) (0.00565) (0.0108) contiguity AC, BC -0.0495*** 0.0465*** -0.0300*** 0.0344*** (0.00353) (0.00603) (0.00351) (0.00601) MID AC * contiguity AB 0.140*** 0.0943*** 0.138*** 0.0861** (0.0181) (0.0273) (0.0180) (0.0272) log-trade AB 0.559*** 0.490*** 0.554*** 0.487*** (9.01e-05) (8.69e-05) (9.05e-05) (8.71e-05) Constant -10.96*** -12.57*** -9.246*** -10.73*** (0.00347) (0.00417) (0.0914) (0.00964) Full effect of violent conflict AC 1.36% -2.30% 2.43% -1.78% Observations 84,187,954 101,005,598 84,187,954 101,005,598 Maddison sample YES - YES - WDI sample - YES - YES Year dummies - - YES YES Standard errors in parentheses *** p<0.001, ** p<0.005, * p<0.01
Conclusion/Outlook • Remaining Hypotheses: Two rejections, one confirmation • Work in progress • Room for improvement: Sample, controls, mechanisms… • Main issue: Causality • Lagged regressors as estimation strategy? • Instruments? Relative military spending and military personal? • GMM? Computer power!
Appendix
Conflict, trade, and contiguity (Hypothesis 2) (1) (2) (3) (4) VARIABLES log trade AB log trade AB log trade AB log trade AB log GDP A, B 0.542*** 0.601*** 0.524*** 0.527*** (0.000447) (0.000498) (0.000542) (0.000599) log GDP C 0.0187*** 0.0604*** 0.000277 -1.48e-05 (0.000390) (0.000440) (0.000449) (0.000503) MID AB -0.864*** -0.874*** -0.820*** -0.865*** (0.00417) (0.00574) (0.00416) (0.00572) MID AC -0.147*** -0.130*** -0.132*** -0.114*** (0.00476) (0.00635) (0.00473) (0.00633) MID BC -0.138*** -0.125*** -0.123*** -0.110*** (0.00459) (0.00618) (0.00457) (0.00616) contiguity AB 0.0754*** -0.154*** 0.0922*** -0.159*** (0.00569) (0.0109) (0.00565) (0.0108) contiguity AC, BC -0.0495*** 0.0465*** -0.0300*** 0.0344*** (0.00353) (0.00603) (0.00351) (0.00601) MID AC * contiguity AB 0.140*** 0.0943*** 0.138*** 0.0861** (0.0181) (0.0273) (0.0180) (0.0272) log-trade AB 0.559*** 0.490*** 0.554*** 0.487*** (9.01e-05) (8.69e-05) (9.05e-05) (8.71e-05) Constant -10.96*** -12.57*** -9.246*** -10.73*** (0.00347) (0.00417) (0.0914) (0.00964) Full effect of violent conflict AC 1.36% -2.30% 2.43% -1.78% Observations 84,187,954 101,005,598 84,187,954 101,005,598 Number of identifiers 3,226,028 4,819,898 3,226,028 4,819,898 R-squared within 0.6492 0.4896 0.6535 0.4937 R-squared between 0.8945 0.8830 0.8959 0.8954 R-squared overall 0.8270 0.8158 0.8295 0.8272 Maddison sample YES - YES - WDI sample - YES - YES Year dummies - - YES YES Standard errors in parentheses *** p<0.001, ** p<0.005, * p<0.01
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