Trade, conflict and informality: Evidence from the South Sudanese civil war

Abstract

AbstractA significant proportion of trade in Africa takes place informally. In this paper we postulate that informal trade is more sensitive to securityrelated trade costs than formal trade. To test this hypothesis, we combine unique aggregated survey data on Uganda's informal crossborder trade with formal customs data and exploit the spatial and time variation of the South Sudanese civil war to causally identify the impact of conflict on different types of trade. Our preferred estimates suggest that the civil war reduced Uganda's informal exports to South Sudan by as much as 80%, compared to an estimated effect of 12% for formal exports. Further, we show that the impact of the conflict on formal exports is driven entirely by a reduction of industrial goods exports while exports of agricultural products continued to flow, presumably reflecting necessities in consumption for which willingness to pay is high. Taken together our results are consistent with the hypothesis that security‐related trade costs have heterogeneous effects on different types of international trade.