RIEB Discussion Paper Series No.2021-01

Title

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

Abstract

We examine how political conflicts affect trade, using both the Goldstein score that scales all political conflicts daily worldwide and thefirm-country-product level data of Chinese imports. Wefind that political conflicts reduce Chinese imports in general. Specically, (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.

Keywords

Political conflicts; Trade; State-owned enterprises; Goldstein score

JEL Classification

F1, F51

Inquiries

Yuhua LI
Department of Information Management, Zhejiang University of Finance & Economics

Ze JIAN
School of business administration, Guangdong University of Finance & Economics

Wei TIAN
School of Ecnomics, Peking University

Laixun ZHAO
Research Institute for Economics and Business Administration,
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059