Trade and thy neighbor's war

This paper is the first to examine the spillover effects of regional conflicts, defined as internal or external armed conflicts in contiguous states, on international trade. Our empirical findings-based on different measures of regional conflict constructed using alternate definitions of contiguity and types of conflict for 145 countries over 1948-2006-reveal a significant negative effect of both intrastate and international conflicts on the bilateral trade of neighboring countries that may not be directly involved in any conflict. The impact increases with conflict duration, and is persistent-on average, it takes bilateral trade 3-5 years to recover after the end of a regional conflict.