• Classical trade models (Heckscher-Ohlin, Melitz, etc.) sometimes fail to explain trade relationship between certain countries;

• Trade disruptions can occur that is unrelated to economic factors;

• Sometimes conflict is one of the reasons. And there is a lot of them! Even for the past year, 14 armed conflicts going on;

• Do not forget non-military conflicts.

• War;

• No active conflict, but militarization as a proxy;

• Personal animosity;

• Non-military conflict;

• Politics.

• Authors consider lengthy dataset (since 1870) to show the effect of conflict on the international trade;

• Framework is simple gravity equation with war conflict dummy variables;

• Trade disruption persist up to decade after the war;

• War create negative externality not only for the parties involved but also for third countries involved with war countries. This effect however is not persistent;

• Destruction of resources lead to decrease in total production which in turn decrease total export reducing trade.

Glick and Taylor (2010)

• Not only active conflicts lead to the trade disruptions;

• What if potential conflicts can already have significant effect on trade?

• In this paper, authors use military spending as a proxy to militarization to show relationship between trade and conflict possibility;

• Main result shows that higher militarization is associated with lower trade;

• Disadvantage: study does not infer causal relationship between variables;

• Even after excluding active conflict, results are robust.

Acemoglu and Yared (2010)

• How persistent the effect of conflict on the trade relations?

• Authors consider effect of Second World War on contemporary trade partnership between Japan and Chinese Provinces;

• Preamble: different provinces suffer different amount of casualties during WWII;

• Authors use DID approach with trade and casuality ratio;

• The higher casuality ratio, lower the imports and FDI from Japanese multinationals;

• Authors argue that this effect can be explained as part of war induced chronic psychological condition that reflect deep animosity and estrangement.

Che, Du, Lu, and Tao (2015)

• What if there is no armed conflict?

• Chinese government have really stretched relationship with Dalai Lama due to Tibetan sovereignty debate;

• Several Chinese leaders threatens to economically retaliate against the countries that hosts Dalai Lama. Is it really an empty threats?

• Authors use gravity equation with Dalai Lama dummy - whether Dalai Lama visited the country. The depended variable is bilateral trade;

• There are different specification of Dalai Lama dummy that depend on the level of official that had meeting with him;

Fuchs and Klann (2013)

• Results show that highest effect was in Hu Jintao era, where countries observed decrease in exports that lasted 2 years on average;

• The biggest effect on trade is shown if Dalai Lama meet with political leader of the country on contrary to other representatives.

Fuchs and Klann (2013)

• What about general political agenda? Can organized citizens affect trade?

• Authors study history of boycotts that affect the bilateral trade;

• Paper follows four cases: Muhammad Cartoon Crisis, Senkaku/Diaoyu Islands conflict, US boycott of France due to Iraq invasion, Turkey's boycott of Israel;

• The effects vary. There were sharp decrease in imports in case of Muhammad Cartoon Crisis, marginally small effect in case of Senkaku/Diaoyu Islands conflict, US boycott of France due to Iraq invasion, and opposite effect Turkey's boycott of Israel;

• Another result shows countries with higher freedom of press tend to be more effective in boycotting;

• Difference in the results may arise due to different capacity of domestic demand with respect of boycotting export and fear of the cost in executing the boycott.

Heilmann (2015)