The Economic Costs of Diplomatic Conflict
61 Pages Posted: 3 Dec 2020
Date Written: November 26, 2020
English Abstract: We examine the economic impact of the diplomatic conflict using the THAAD crisis between South Korea and China as a case study. Using the synthetic control method, we estimate the conflict’s impacts on Chinese tourists to Korea and stock prices of China-related Korean firms. We find that a negative effect on the inflow of tourists appeared with a lag of 3 months after the announcement of the decision and persisted for about 18 months. On the other hand, the impacts on the stock market appeared immediately, but insignificant and short-lived.
Keywords: Economic Sanction, Geopolitical Events, Tourism, Stock Market, South Korea, China, Synthetic Control Method
JEL Classification: F51, P16, Z30
Suggested Citation: Suggested Citation