"The impact of interstate tensions on economic exchange: Evidence from shocks to Sino-Japanese relations"
Publication type: Working paper
We study the impact of interstate tensions on international economic relations by analyzing market reaction to adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure suffer relative declines during each event window; a symmetric effect is observed for Chinese companies with high Japanese exposure. The effect on Japanese companies is less pronounced for labor-intensive firms and more pronounced for those operating in industries dominated by Chinese state-owned enterprises; the impact on Chinese firms is primarily for consumer-focused companies. These results highlight the role of institutional context in mediating the impact of interstate frictions on economic outcomes.
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