Nationalism and Economic Exchange: Evidence from Shocks to Sino-Japanese Relations
62 Pages Posted: 6 May 2014
Date Written: May 2014
We study the impact of nationalism and interstate frictions on international economic relations by analyzing market reaction to adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure suffer relative declines during each event window; a symmetric effect is observed for Chinese companies with high Japanese exposure. The effect on Japanese companies is more pronounced for those operating in industries dominated by Chinese state-owned enterprises, while firms with high Chinese employment experience lower declines. These results emphasize the role of countries' economic and political institutions in mediating the impact of interstate frictions on firm-level outcomes.
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