How political conflicts distort bilateral trade: Firm-level evidence from China

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. Specifically, (i) the imports of State-o...

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Bibliographic Details
Published in:Journal of economic behavior & organization 2021-03, Vol.183, p.233-249
Main Authors: Li, Yuhua, Jian, Ze, Tian, Wei, Zhao, Laixun
Format: Article
Language:English
Subjects:
Export Control
Goldstein score
Import boycott
Political conflicts
State-owned enterprises
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Summary: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. Specifically, (i) the imports of State-owned enterprises (SOEs) are most reduced, and the effects mostly fall on imports of 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 conflicts 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.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2021.01.003