Dr. Nassir Ul Haq Wani
Volume 4 Issue 2 | Dec 2021
DOI: 10.31841/KJSSH.2022.45
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Abstract
This study evaluates the theoretical and empirical relationship between conflict and trade flows in the SAARC region. The analysis is based on a panel data set with annual observations on 5 countries from 2005 to 2019, which combines World Bank trade data with Uppsala Conflict Data Program data on armed conflict, non-state conflict, and one-sided violence. A structural gravity model is used to investigate the data. Indigeneity issues are addressed using theory-consistent estimation methods such as the fixed effect estimator. According to the study, the type of conflict and the number of conflicts in which the country is involved have an impact on trade flows. Furthermore, the effects differ on the exporter and importer sides. According to the study, smaller conflicts between armed groups have a negative but minor impact only on the importer side and even a positive impact on the exporter side, whereas aggressions against civilians have a negative impact only on the importer side. Major conflicts reduce trade flows by up to 73%, with the impact being greater on the exporter side than the importer side. The study also assesses the impact on trade of the status of a country pair's relationship (enemy or ally) involved in the same conflict. Trading country pairs face a trade loss of up to 87 per cent if both countries enter the same conflict and become adversaries. Surprisingly, even if two countries are allies in the same conflict, the impact on trade volume is still negative and significant. Our findings support the idea that the peace-promoting effect of trade varies according to the geographical proximity of countries. Greater bilateral trade interdependence appears to have a significantly greater peace-promoting effect on neighbouring countries. Overall, our findings show that trade integration has a significant impact on interstate conflict.
JEL codes: E00, F13, F14, O47
Keywords: Trade, Conflict, Peace, Conflict-Trade Model, SAARC, Gravity model.