Interrupted Lines: Conflict, Trade Flows, and Transport Costs
The threat posed by conflict along trade routes has been a persistent problem since ancient times and this threat to market access is no less salient for modern countries. This paper tackles this issue of restricted market access by developing a modified version of the gravity model that incorporates the impact of conflict in adjacent countries into transport costs. The empirical strategy exploits geographic variation in the location of countries and conflicts and extracts a unique adjacent conflict effect that negatively impacts trade. Countries with already precarious access to external markets (such as landlocked countries) are more adversely affected by adjacent conflict experiencing up to twice as severe a drop in trade than other countries. This effect is driven by interruptions of access to other markets due to the difficulties associated with conflict in neighbouring countries.