“Immunizing From the Terror: China’s New Comparative Advantage?”

Bing Li, Central University of Finance and Economics

Xiaochen Yan, Central University of Finance and Economics

 

This study empirically investigates the impact of terrorist attacks on bilateral trade between Belt & Road countries and China comparing with other countries by employing the theoretical gravity model augmented with terrorism index, based on a panel data set from 1984 to 2014 covering 186 countries. We find that Belt & Road countries, where terrorist attacks are more frequent, trade more with China comparing with other countries. We further test two possible mechanisms. Some evidences show that China's comparative advantage may due to the lower value of life; China has this comparative advantage only after 911 incident, and only with Belt & Road countries, which indicate that foreign policy could also contribute to the comparative advantage. Our findings are robust through a series of robustness checks including the delayed effects of terrorist attacks, various measurements of terrorism index, and other empirical specification of the gravity model.