Abstract
This chapter adds to the literature on the relationship between trade and conflict by examining the impact of internal conflicts on trade structure. Two hypotheses are tested: (1) internal conflicts impede a shift to manufacturing (as measured by higher technology exports) and (2) internal conflicts reduce the willingness to send complex goods to countries experiencing conflict. The analysis uses geo-referenced conflict data for over 100 developing countries during the period 1989–2014. A subsample is then used to investigate the African continent. Internal conflicts are found to reduce exports and impede shifts to manufacturing in Africa. Evidence that internal conflicts reduce imports is strong and suggest conflicts impede technology transfer in developing countries. The results suggest achieving domestic stability would boost development.
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Notes
- 1.
- 2.
An interesting question that one may ask is how do countries transition from primary resources to manufacturing? While in this chapter we are not trying to explain how countries can shift to complex goods, we provide an analysis on how conflicts inhibit their ability to do so. Nevertheless, one might be able to see this in the import technology categories, where countries that import high technology experience less conflict. Such analysis follows from technology transfer growth models.
- 3.
High technology goods refer to value-added products whose manufacture uses advanced technical knowledge and methods, such as computer products and laser-optic equipment.
- 4.
By raising labour earnings (returns to the relatively abundant factor) and reducing capital earnings (returns to the relatively scarce factor) as the country specializes in the products of its comparative advantage (those whose production requires a greater proportion of the countries relatively abundant factor).
- 5.
One might expect imports of goods such as weaponry and basic necessities, to increase initially as disruptions in the domestic market force firms and consumers look to international markets for goods. The likelihood of this happening, however, is reduced by the fact that import prices are likely to increase as the nation's currency deteriorates and the risks of sending goods to the country rise. Also, while states may procure arms through legal channels, the small arms most often used in internal conflicts are often acquired through illicit channels (Renner 2002).
- 6.
A result they attribute to the ambiguities in the theoretical effects of openness on conflict; since trade may either reduce, or increase conflicts, these effects appear to cancel each other out.
- 7.
Note all variable are logged in the model.
- 8.
For the interested reader, detailed descriptions of these categories can be found in Lall (2000). The United Nations Conference on Trade and Development (UNCTAD) also provide a description on their data website: https://unctadstat.unctad.org/en/Classifications/DimSitcRev3Products_Ldc_Hierarchy.pdf.
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- 11.
- 12.
Blattman and Miguel (2010) highlight this point by concluding their review of the literature on civil war with an appeal for new and better data.
- 13.
This should ensure that the actual number of fatalities was at least 1 and means the fatality is more likely to have been intended.
- 14.
1989 was chosen because the conflict data begin in 1989.
- 15.
- 16.
Barbieri and Reuveny (2005) state that “the simultaneity of globalization and civil war involves at least four continuous variables and one dichotomous variable. To our best knowledge, the estimation algorithms required for this analysis are not yet available.”
- 17.
Including both resulted in openness losing significance, but did not, otherwise, alter the story of the results.
- 18.
Since the results for the quantile regressions do not deviate from the Fixed Effects regressions, they are not included in this chapter. Should the reader wish to see them, they can be made available by request to the authors.
- 19.
Full tables are provided in the appendices.
- 20.
In the case of primary exports, secondary education is found to have negative effects which might be explained by the fact that countries with higher average levels of education are able to shift to processing and manufacturing (higher technology goods), and thus use their primary products for their own manufacturing rather than exporting them.
- 21.
The true effect is likely to be greater, as more severe conflicts will likely have greater impacts. For example, Martin et al. (2008) and Bayer and Rupert (2004) find civil wars reduce trade by more than 25%.
- 22.
Full tables are provided in the appendices.
- 23.
There is a significant negative effect of secondary education on imports of low technology manufactures. Given that the data considers only low- and middle-income countries, this may suggest that countries with higher average levels of education are more likely to produce these goods themselves, rather than import them.
- 24.
Full tables are provided in the appendices.
- 25.
Full tables are provided in the appendices.
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Appendices
Appendix A
Appendix B—Full Regression Tables for Developing Countries
1.1 Exports and Conflict Regressions Based on Fixed Effects (FE) Estimation Technique
See Tables 8, 9, 10, 11, 12, 13, 14, and 15.
Appendix C—Full Regression Tables for African Countries
1.1 Exports and Conflict in Africa Regressions Based on Fixed Effects (FE) Estimation Technique
See Tables 16, 17, 18, 19, 20, 21, 22, and 23.
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Verner, J., Clance, M. (2022). The Effects of Conflict on Trade: Do Internal Conflicts Impede Shifts to Manufacturing and Technology Transfer?. In: Wamboye, E.F., Fayissa, B. (eds) The Palgrave Handbook of Africa’s Economic Sectors. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-75556-0_42
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