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. 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.
Political conflicts; Trade; State-owned enterprises; Goldstein score
Department of Information Management, Zhejiang University of Finance & Economics
School of business administration, Guangdong University of Finance & Economics
School of Ecnomics, Peking University
Research Institute for Economics and Business Administration,
Rokkodai-cho, Nada-ku, Kobe