War and Third-party Trade

Author:

Feldman Nizan1,Sadeh Tal2

Affiliation:

1. School of Political Science, Haifa Research Center for Maritime Strategy, Haifa University, Haifa, Israel

2. Department of Political Science, Tel Aviv University, Tel Aviv, Israel

Abstract

Few studies explain how wars affect trade with third parties. We argue that wartime trade policies should raise trade with friendly and enemy-hostile third parties but reduce trade with hostile and enemy-friendly third parties. At the same time, the private motivation of firms and households may be incompatible with national wartime trade policies and constrain the effectiveness of wartime trade policies. Our directed dyadic data set consists of almost all of the states from 1885 to 2000. Running a high definition fixed effects regression with two-way clustering of standard errors, we find that hostile third parties tended to reduce trade with a combatant state by roughly 30 percent. In addition, trade with third parties friendly to the enemy fell by a similar magnitude. In contrast, on average, war hardly affected trade with third parties because of substitution of war-ridden markets with third-party business partners.

Publisher

SAGE Publications

Subject

Political Science and International Relations,Sociology and Political Science,General Business, Management and Accounting

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