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Disentangling the Impact of Wars and Sanctions on International Trade: Evidence from Former Yugoslavia

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Abstract

Wars and sanctions tend to reduce the trade of the countries involved. However, these events often occur concurrently, which complicates the assessment of their effects. This article studies the case of the former Yugoslavia to disentangle the respective effects of these events. We show that the wars and sanctions caused a reduction in trade not only between the countries involved but also with other countries. Moreover, the impact of the sanctions on trade volume is more pronounced than the impact of war. Finally, we show that the effects of both war and sanctions persisted for several years after they ended.

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Notes

  1. When trade is affected, it is a result of an embargo or a boycott. A boycott restricts imports from the target countries, whereas an embargo restricts exports to the target countries (Caruso, 2003).

  2. On the sanctions imposed in the 1990s, see Elliott and Hufbauer (1999). For a complete list of sanctions, see Hufbauer and Oegg (2003).

  3. The ‘first’ Yugoslavia was created after the First World War with the proclamation of the Kingdom of Serbs, Croats and Slovenes on 1 December 1918. However, the Kingdom was dismantled during the Second World War. The ‘second’ Yugoslavia began with the proclamation of the People's Republic of Yugoslavia on 29 November 1945, which then became the Socialist Federal Republic of Yugoslavia in 1963. The ‘third’ Yugoslavia was proclaimed on 27 April 1992, after the breakup of the former. It included only Serbia and Montenegro. Then, on 4 February 2003, Yugoslavia was dissolved, and the state of Serbia-Montenegro was born. On 3 June 2006, Montenegro declared its independence.

  4. It should be noted that the first manifestation of the disintegration of the Yugoslav trade area were the Serbo-Slovenian and Serbo-Croatian trade wars in December 1989.

  5. In the early 1990s, the population of Bosnia and Herzegovina consisted of three communities with different religions: Bosniaks (50% of the population), Serbs (31%) and Croats (17%).

  6. For an exhaustive survey on the conflict-trade model see Polachek and Seiglie (2007).

  7. However, as shown in the section ‘Trade Impact of Wars and Sanctions: A Survey’, some influential studies used time-series data and the Granger causality tests: see Gasiorowski and Polachek (1982), Reuveny and Kang (1996) or Anderton and Carter (2001).

  8. Another potential simultaneity bias may occur in the estimation of gravity equations due to the causal relationship between GDP and trade. However, Baier and Bergstrand (2007) suggest that this issue may be largely ignored for two reasons. First, GDP is related to net multilateral exports, which represent less than 5% of a country's GDP. Second, the gravity equation relates GDP to bilateral trade flows, which represent a very small share of any country's net multilateral exports.

  9. The data obtained are consistent in terms of relative shares with those provided by Bazler-Madzar (2000) for the period 1983–1987 and are calculated from the input-output tables of the former Yugoslavia.

  10. Bazler-Madzar (2000) provides the average exports of the Yugoslav republics for the 1984–1986 period, but only to six centrally planned economies.

  11. Argentina, Brazil, Chile, China, Colombia, South Korea, Ecuador, Egypt, India, Indonesia, Malaysia, Morocco, Mexico, Pakistan, Philippines, Singapore, Thailand, Tunisia, Turkey, South Africa and Venezuela.

  12. Argentina, Australia, Austria, Brazil, Canada, Chile, China, Colombia, South Korea, Denmark, Ecuador, Egypt, Spain, United States, Finland, France, Greece, India, Indonesia, Ireland, Italy, Japan, Malaysia, Mexico, Morocco, the Netherlands, New Zealand, Pakistan, Philippines, Portugal, United Kingdom, Singapore, Sweden, Switzerland, Thailand, Tunisia, Turkey, Belgium-Luxembourg, South Africa and Venezuela.

  13. Estimations were also run excluding data for the year 1988, but this did not affect significantly the results.

  14. Albania, Austria, Belgium and Luxembourg, Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Macedonia, the Netherlands, Poland, Portugal, Romania, Serbia and Montenegro, Slovakia, Slovenia, Spain, Sweden, United Kingdom, and all the countries of former USSR together. Country groupings are due to data availability reasons.

  15. The full sample includes 580 observations for 1988 and 27 × 26=702 observations per year for 1993–2002 (ie, a total of 7,600 potential observations).

  16. More lags are not possible because the dataset covers 1988–2002 for data availability reasons and the last war episode ended in 1999.

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Acknowledgements

I thank two anonymous referees and the editor, Paul Wachtel, for many valuable comments that significantly improved the paper. I am grateful to José de Sousa, Octavio Escobar and the participants at ETSG Conference in Copenhagen for helpful comments. The usual disclaimer applies.

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    Olivier Lamotte

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Lamotte, O. Disentangling the Impact of Wars and Sanctions on International Trade: Evidence from Former Yugoslavia. Comp Econ Stud 54, 553–579 (2012). https://doi.org/10.1057/ces.2012.17

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