The bad neighborhood effect: Supply chain disruptions arising from neighboring wars

Abstract

In the 21st century, African nations continue to grapple with recurring civil conflicts and persistent economic challenges. This study demonstrates a novel and critical channel through which wars hinder Africa's long-term growth: isolating African firms from global supply chains. Leveraging a unique dataset containing conflict data and information on supplier-customer relationships, we provide empirical evidence of the disruptive effects of neighboring conflicts on the overseas customer relationships of African firms. These conflicts impose multiple shadow costs on nearby peaceful nations. Furthermore, our findings show that wars cause more substantial harm to non-natural-resource industries in Africa, making it harder for them to maintain international customer relationships.