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Research Projects

FY 2014/2015 Research Topic: C-39
Political Limits on Trade: Implications for Developing Economies


While there is a conventional wisdom that international politics affects trade, there are only few papers that provide empirical evidence of the impact of international political relations on trade flows. Even less clear are the mechanisms of how international politics affects trade in the absence of interstate wars, tariffs and sanctions. The findings from this research are particularly relevant for those developing countries that are using FDI-led and export-led growth strategies. In a recent research Mityakov, Tang, and Tsui (4th round, Journal of Law and Economics) use sector-level world trade data and find that worsened international political relations result in lower imports of petroleum and other chemical products from the trading partners to the US, to other major powers including Japan, and also to countries with oil companies operating overseas. The authors suggest that given that the firms that are vertically integrated and engage in FDI are subject to the risks of hold-up and expropriation by a hostile government, the industries with the high concentration of vertically integrated firms (such as oil industry and other chemical products) are subject to political influence. In our project we aim to test the hold-up risk hypothesis explicitly combining trade with foreign investment data: first using firm-level trade and foreign investment data on US oil firms, and second using industry-level trade and foreign investment data for Japan. We expect to find that except for the imports of oil and some other chemical products the imports of R&D intensive goods are also affected by international relations.


April 2013 - March 2015

Members of the Research Project

[ Organizer ] KASHCHEEVA Mila
[ Co-researcher ] Kevin Tsui (Associate Professor, The John E. Walker Department of Economics, Clemson University, US)