Conflict and Inter-Group Trade: Evidence from the 2014 Russia-Ukraine Crisis
72 Pages Posted: 18 Jun 2019 Last revised: 8 Nov 2019
Date Written: November 7, 2019
Does armed conflict reduce trade even in non-combat areas through the destruction of inter-group social capital? We analyze Ukrainian trade transactions before and after the 2014 Russia-Ukraine conflict. In a difference-in-differences framework, we find that Ukrainian firms from districts with fewer ethnic Russians experienced a deeper decline in trade with Russia. This decline is economically significant, persistent, and explained by erosion of trust and the rise of local nationalism. Affected Ukrainian firms suffered a decrease in performance and diverted trade to other countries. Our results suggest that, through social effects, conflict can be economically damaging even away from combat areas.
Keywords: Conflict, Inter-Group Tensions, Trade, Firms
JEL Classification: D22, D74, F14, F51, H56
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