Conflict or Distance: What Determines the International Trade?

This paper aims to examine the impact of distance and conflict on the dynamics of Turkish international trade by using a gravity type model. Since the gravity model of international trade would work only if there is no conflict, we incorporate conflicts into the model. Three questions have motivated this study: (1) What are the determinants of trade performance? (2) How does conflict impacts international trade? (3) How does conflict between trading partners affect the impact of distance on trade? In order to explain the impact of different types of conflict on trade relations, we defined and measured two different types of conflict: Diplomatic and security. In our analysis, we also control for the impact of Arab-Spring on trade relations of Turkey. We use dynamic panel data models to explore the impact of conflict and proximity by using UN COMTRADE bilateral trade data of Turkey for the period 1990-2013. The estimation results show that while diplomatic conflicts have no significant impact on trade, security conflicts affect trade relations negatively. We also found that Arab Spring had a negative impact on the trade relations. Moreover, we found in this study that geographical distance reduces the negative impact of conflict