Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268221 
Year of Publication: 
2022
Series/Report no.: 
Hannover Economic Papers (HEP) No. 698
Publisher: 
Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, Hannover
Abstract: 
We derive a novel estimation approach to quantify three-party relocation effects in a dyadic framework. Applied to the effects of civil conflicts on trade, we find robust evidence that importers substitute away from exporters that are engaged in conflict. This trade relocation persists after the resolution of a conflict. As a potential explanation for the longevity of this effect, we provide evidence that trade relocation increases the likelihood of the two countries signing a Preferential Trade Agreement, which persistently decreases their bilateral trade costs. A heterogeneity analysis suggests that trade relocation does not occur in the fuels sector, and that highly integrated supply chains are less likely to relocate. We derive our estimation approach from the structural gravity model of international trade, translating the triadic relationship between a conflict country and an exporter-importer pair into an estimable dyadic relationship. Our estimation approach can be adapted to either cover alternative unilateral shocks, e.g. natural disasters, or to analyze other bilateral dependent variables, e.g. migration or FDI flows.
Subjects: 
Conflict and trade
trade diversion
gravity estimation
general equilibrium
JEL: 
F14
D74
N41
Document Type: 
Working Paper

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