Diplomatic Relations and Trade: The Effect of Switching Ties from Taiwan to China.
Abstract
To date, the literature on diplomacy and trade has focused on the trade-promotion ability of existing diplomatic representation. This study uses countries that switch diplomatic allegiances from Taiwan to China to analyze the impact of both the establishment and the disbandment of diplomatic relations on bilateral trade flows. Using data from 90 developing countries, covering a period from 1995 to 2019, the paper finds that this particular switch in allegiances leads to a decrease in the values of exports to China by 56%, but does not affect the values of exports to Taiwan. For the values of imports, the switch leads to a 25% increase in the values of goods from China, but a 39% decrease in goods coming from Taiwan. These impacts are heterogeneous across geographic regions. In particular, the decreases in exports to China and imports from Taiwan, as well as the increase in imports from China are all driven by the trade of non-Sub-Saharan African countries.
Pivoting towards China: The Impact of Severing Diplomatic Ties with Taiwan on Malawi's Trade Flows.
Abstract
This paper explores the impact that the establishment of diplomatic relations between Malawi and China had on the former's international trade flows. Setting up diplomatic relations allows countries to build strong bonds, including in international trade. Using a difference-in-differences approach and a gravity model estimated via a Poisson pseudo maximum likelihood (PPML) technique, this study finds that the creation of these diplomatic ties led to a 407% increase in the average value of Malawi's exports to China, representing a nominal value of $9.65 million. Imports from China increased by 99%, corresponding to a jump in the average nominal value of $27.1 million. These improvements in bilateral trade flows notwithstanding, additional tests show that the gains came at the expense of Malawi's trade with some of its traditional partners. These findings signify that the establishment of these diplomatic relations only led to trade diversion, but not trade creation.
Diplomatic Relations and Trade: Evidence from Exporter Dynamics Database
Abstract
This paper uses the Exporter Dynamics Database to assess how firms are affected when countries switch diplomatic allegiances from Taiwan to China. This study builds on the result from my job market paper, which finds that switching leads to a decrease in exports to China but exports to Taiwan are not affected. Areas of focus include how switching affects firm entry and exit, as well as the size and number of firms exporting to specific destination countries.