IDEAS home Printed from https://ideas.repec.org/a/bla/worlde/v44y2021i11p3422-3441.html
   My bibliography  Save this article

The impact of political relations on international trade: China–Philippines island dispute as a quasi‐natural experiment

Author

Listed:
  • Changyuan Luo
  • Shiyi Sun
  • Guanghua Wan

Abstract

In May 2012, with tensions over Huangyan Island taking an increasingly sour turn, China released a document to strengthen inspection and quarantine of fruits imported from the Philippines. To many, this retaliation implied that the former launched economic sanctions against the latter over the growing conflict. As such, this paper takes that tension as a quasi‐natural experiment to examine the impact of deteriorating political relations on trade. We employ difference‐in‐difference to conduct an empirical investigation by using the monthly data of the Philippines’ fruit export. The estimation results show that after the implementation of the document, in comparison with other export destination countries, Philippine banana and pineapple exports to China decreased by 42% and 88%, respectively. However, the sanction effects weakened over time. Extended analyses also find that the Philippines evaded the sanctions to some extent by trans‐shipping through third countries, transferring exports to other countries, and deeply processing fruits. In conclusion, the sanctions were not as effective as expected.

Suggested Citation

  • Changyuan Luo & Shiyi Sun & Guanghua Wan, 2021. "The impact of political relations on international trade: China–Philippines island dispute as a quasi‐natural experiment," The World Economy, Wiley Blackwell, vol. 44(11), pages 3422-3441, November.
    • Handle: RePEc:bla:worlde:v:44:y:2021:i:11:p:3422-3441
    DOI: 10.1111/twec.13070
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/twec.13070
    Download Restriction: no
    File URL: https://libkey.io/10.1111/twec.13070?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    2. S. Prehn & B. Brümmer & T. Glauben, 2016. "Gravity model estimation: fixed effects vs. random intercept Poisson pseudo-maximum likelihood," Applied Economics Letters, Taylor & Francis Journals, vol. 23(11), pages 761-764, July.
    3. Eliana La Ferrara & Alberto Chong & Suzanne Duryea, 2012. "Soap Operas and Fertility: Evidence from Brazil," American Economic Journal: Applied Economics, American Economic Association, vol. 4(4), pages 1-31, October.
    4. Clemens Fuest & Andreas Peichl & Sebastian Siegloch, 2018. "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany," American Economic Review, American Economic Association, vol. 108(2), pages 393-418, February.
    5. Gary Clyde Hufbauer & Kimberly Ann Elliott & Tess Cyrus & Elizabeth Winston, 1997. "US Economic Sanctions: Their Impact on Trade, Jobs, and Wages," Working Paper Series Working Paper Special (2), Peterson Institute for International Economics.
    6. Chen, Yvonne Jie & Li, Pei & Lu, Yi, 2018. "Career concerns and multitasking local bureaucrats: Evidence of a target-based performance evaluation system in China," Journal of Development Economics, Elsevier, vol. 133(C), pages 84-101.
    7. Sonal S. Pandya & Rajkumar Venkatesan, 2016. "French Roast: Consumer Response to International Con flict--Evidence from Supermarket Scanner Data," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 42-56, March.
    8. Guy Michaels & Xiaojia Zhi, 2010. "Freedom Fries," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 256-281, July.
    9. de Sousa, José, 2012. "The currency union effect on trade is decreasing over time," Economics Letters, Elsevier, vol. 117(3), pages 917-920.
    10. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    11. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, vol. 112(2), pages 220-222, August.
    12. Morrow, James D. & Siverson, Randolph M. & Tabares, Tressa E., 1998. "The Political Determinants of International Trade: The Major Powers, 1907–1990," American Political Science Review, Cambridge University Press, vol. 92(3), pages 649-661, September.
    13. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    14. Christina L. Davis & Sophie Meunier, 2011. "Business as Usual? Economic Responses to Political Tensions," American Journal of Political Science, John Wiley & Sons, vol. 55(3), pages 628-646, July.
    15. Liu, Qing & Qiu, Larry D., 2016. "Intermediate input imports and innovations: Evidence from Chinese firms' patent filings," Journal of International Economics, Elsevier, vol. 103(C), pages 166-183.
    16. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 17(Nov), pages 2-20.
    17. Caruso Raul, 2003. "The Impact of International Economic Sanctions on Trade: An Empirical Analysis," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 9(2), pages 1-36, April.
    18. Heilmann, Kilian, 2016. "Does political conflict hurt trade? Evidence from consumer boycotts," Journal of International Economics, Elsevier, vol. 99(C), pages 179-191.
    19. Patrick Maximilian Weber & Beata Stępień, 2020. "Conform or challenge? Adjustment strategies of sanction‐torn companies," The World Economy, Wiley Blackwell, vol. 43(11), pages 3006-3024, November.
    20. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    21. James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-2186, December.
    22. Raymond Fisman & Yasushi Hamao & Yongxiang Wang, 2014. "Nationalism and Economic Exchange: Evidence from Shocks to Sino-Japanese Relations," The Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2626-2660.
    23. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    24. Patrick Kline, 2011. "The Impact of Juvenile Curfew Laws on Arrests of Youth and Adults," American Law and Economics Review, American Law and Economics Association, vol. 14(1), pages 44-67.
    25. Carrere, Celine, 2006. "Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model," European Economic Review, Elsevier, vol. 50(2), pages 223-247, February.
    26. Drezner, Daniel W., 2000. "Bargaining, Enforcement, and Multilateral Sanctions: When Is Cooperation Counterproductive?," International Organization, Cambridge University Press, vol. 54(1), pages 73-102, January.
    27. Du, Yingxin & Ju, Jiandong & Ramirez, Carlos D. & Yao, Xi, 2017. "Bilateral trade and shocks in political relations: Evidence from China and some of its major trading partners, 1990–2013," Journal of International Economics, Elsevier, vol. 108(C), pages 211-225.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. (ed.), 0. "Research Handbook on Economic Diplomacy," Books, Edward Elgar Publishing, number 16053.
    2. Pao-Li Chang & Tomoki Fujii & Wei Jin, 2022. "Good Names Beget Favors: The Impact of Country Image on Trade Flows and Welfare," Management Science, INFORMS, vol. 68(10), pages 7555-7596, October.
    3. Du, Yingxin & Ju, Jiandong & Ramirez, Carlos D. & Yao, Xi, 2017. "Bilateral trade and shocks in political relations: Evidence from China and some of its major trading partners, 1990–2013," Journal of International Economics, Elsevier, vol. 108(C), pages 211-225.
    4. Lin, Faqin & Hu, Cui & Fuchs, Andreas, 2019. "How do firms respond to political tensions? The heterogeneity of the Dalai Lama Effect on trade," China Economic Review, Elsevier, vol. 54(C), pages 73-93.
    5. Yan, Jiaqiang & Zhou, Yonghong, 2021. "Economic return to political support: Evidence from voting on the representation of China in the United Nations," Journal of Asian Economics, Elsevier, vol. 75(C).
    6. Egger, Peter H. & Nigai, Sergey, 2015. "Structural gravity with dummies only: Constrained ANOVA-type estimation of gravity models," Journal of International Economics, Elsevier, vol. 97(1), pages 86-99.
    7. Silva João M. C. Santos & Tenreyro Silvana & Windmeijer Frank, 2015. "Testing Competing Models for Non-negative Data with Many Zeros," Journal of Econometric Methods, De Gruyter, vol. 4(1), pages 29-46, January.
    8. Matthieu Crozet & Julian Hinz, 2020. "Friendly fire: the trade impact of the Russia sanctions and counter-sanctions," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 35(101), pages 97-146.
    9. Saima Nawaz, 2020. "Institutions, Regional Integration and Bilateral Trade in South Asia: PPML Based Evidence," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(2), pages 221-242.
    10. Hejazi, Mina & Grant, Jason H. & Peterson, Everett, 2016. "Hidden Trade Costs? Maximum Residue Limits and US Exports to Trans-Atlantic and Trans-Pacific Trading Partners," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235847, Agricultural and Applied Economics Association.
    11. Tang, Heiwai, 2012. "Labor market institutions, firm-specific skills, and trade patterns," Journal of International Economics, Elsevier, vol. 87(2), pages 337-351.
    12. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    13. Fuchs, Andreas & Kaplan, Lennart & Kis-Katos, Krisztina & Schmidt, Sebastian S. & Turbanisch, Felix & Wang, Feicheng, 2020. "Mask wars: China's exports of medical goods in times of COVID-19," University of Göttingen Working Papers in Economics 398, University of Goettingen, Department of Economics.
    14. Yaying Liu & Jin Chen & Churen Sun, 2022. "Partnership Diplomacy and China’s Exports," Sustainability, MDPI, vol. 14(19), pages 1-22, September.
    15. Jianting Fan & Bo Lu, 2021. "The impact of summit visits on bilateral trade: Empirical evidence from China," The World Economy, Wiley Blackwell, vol. 44(12), pages 3583-3608, December.
    16. Güzin Bayar, 2018. "Estimating export equations: a survey of the literature," Empirical Economics, Springer, vol. 54(2), pages 629-672, March.
    17. Afesorgbor, Sylvanus Kwaku, 2019. "The impact of economic sanctions on international trade: How do threatened sanctions compare with imposed sanctions?," European Journal of Political Economy, Elsevier, vol. 56(C), pages 11-26.
    18. Liu, Yuanyuan & Liu, Guanchun & Zhang, Chengsi, 2021. "Local land supply and fiscal incentives for R&D: Evidence from a quasi-natural experiment in China," China Economic Review, Elsevier, vol. 68(C).
    19. Egger, Peter & Nigai, Sergey, 2015. "Structural Gravity with Dummies Only," CEPR Discussion Papers 10427, C.E.P.R. Discussion Papers.
    20. Hinz, Julian, 2017. "The cost of sanctions: Estimating lost trade with gravity," Kiel Working Papers 2093, Kiel Institute for the World Economy (IfW Kiel).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:worlde:v:44:y:2021:i:11:p:3422-3441. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.