How did wars dampen trade in the Mena Region?

Abstract EN

The paper investigates the effects of wars on trade in the Middle East and North Africa (MENA) region.

As a region, MENA faces considerable risk of conflicts.

Using an augmented gravity model, we introduce a war variable and distinguish between different types of conflicts.

We run a battery of sensitivity analysis tests to control for the endogeneity problem that may arise in our estimation.

The results show that, in general, wars have a significantly negative impact on exports, imports and trade.

Civil conflicts hinder exports, imports and trade significantly.

The disaggregated version of the gravity model shows that non-state conflicts have a detrimental effect on bilateral trade flows in manufacturing and that none of the conflicts do affect trade in services.

Finally, the outcome of the gravity model for manufacturing sectors has been used to compute advalorem equivalents of wars at the country level.

We found that, on average, a conflict is equivalent to a tariff of 5% of the value of trade.

More heterogeneity is observed at the sectoral level (where AVEs range from 4% to 65%).