Commercial Casualties: Political Boycotts and International Disputes

Abstract

We explore whether international disputes harm commerce by galvanizing consumer boycotts of foreign products. Boycotts increase the social penalty of owning goods associated with a foreign adversary, offsetting individual incentives to free ride or discount the utility of participation. By harming international commerce, boycotts can help reveal information about resolve and avoid more costly forms of conflict. Using administrative data on the universe of new passenger vehicle registration records in China from 2009 to 2015, we demonstrate that consumer boycott that arose amid tensions between China and Japan over a territorial dispute in 2012 had significant and persistent effects on vehicle sales, especially in cities that witnessed anti-Japanese street demonstrations. The market share of Japanese brands dropped substantially during and after the boycott with long-lasting effects. Our analysis provides concrete evidence of the short- and long-term impacts of international tensions on economic activities.

Keywords: Boycott, Commerce, Trade, International Conflict

JEL Classification: F5, L8