When Do Conflicting Political Relations Affect International Trade?

Abstract

Limited commercial integration between India and Pakistan or within much of the Middle East suggests that conflicting political interests between countries can have a detrimental effect on their economic relations. But rapidly growing economic ties between Mainland China and Taiwan show that commerce can also flourish even in the presence of very hostile relations. I explore this variation and hypothesize that the effects of international political conflict on trade are less severe in cases where internationalist economic interests have relatively strong political clout domestically. Simple quantitative tests on a sample of seventy-six countries over the years 1961 to 1992 are supportive; further evidence is provided via a brief case study of Mainland China-Taiwan relations.