WAR AND ITS SPILLOVERS : The effect of regional conflict on bilateral trade

Abstract: This thesis examines the spillover effects of armed conflicts on trade in neighboring countries. The empirical results, obtained by using a rich dataset on trade and conflict for 168 countries during the 1950-2011 period, and thus including the onset of the Arab Spring, show that conflict disrupts the trade of neighboring countries, even though they are not directly involved in any conflict. These spillovers are strongest one year after the onset of the conflict, thus suggesting that the negative effects of regional war on trade are lagged rather than contemporaneous, while they also increase the more violent the conflict is. When conflict in secondary neighbors, defined as countries that are not directly contiguous yet closer than 250km to any country in the trading-pair, is introduced the results are unclear as a majority of the estimates are insignificant and not robust to different model specifications.