A gravity model for international trade and conflict

Abstract. This paper investigates the nexus between conflict and trade using data from 77 countries. For this purpose, it puts forward a gravity model that is augmented with interstate conflict casualties. In order to overcome statistical problems related to heteroscedasticity and the omission of the extensive margin (the zero observations), the gravity model is estimated using a Poisson Pseudo-Maximum Likelihood method (PPML). The model suggests a downward impact on trade that affects all sides of the conflict, whether they suffer casualties or deal them. However, said impact remains small, which hints that even before direct conflicts occur, the involved countries are less likely to have significant trade flows. Keywords. International trade, Armed conflict, Gravity model. JEL. C23, F14, F51.