Bilateral Trade and Strategic Rivalry

Conflict is a costly endeavor. However, conflict itself of unobservable magnitude which makes statistical inference problematic. The long-run economic cost calculated as the sum contemporaneous costs and discounted value future costs. Typically, researchers use War or Militarized Interstate Conflicts independent, discrete events to calculate its effect then introduce time binary variable estimate lagged effects since end event. datasets accurately recognize dates core conflict. they ignore possibility that lack militarized does not necessarily mean issues have been settled, thus we are underestimating overall present study estimates rivalry. international rivalry cycle process in pair states create sustain relationship atypical hostility for some period. This paper part renaissance research activity applied economics trade. gravity model used determine Rivalry on bilateral trade using panel data. At aggregate level, strategic enduring rivalries negative significant flow. results show total accounts 48%-57% fall volume, equivalent 19% ad-valorem tax. If disaggregated by claim type: spatial, positional, mixed, observe varies substantially with type. Spatial explains 16%-26% while positional mixed explain 49%-57% 77%-82%, respectively.