Trade Follows the Flag or Business as Usual? Economic Impact of South China Sea Dispute in China-Philippines Relations from 2012 to 2016

Abstract

Mainstream scholarship exploring the relationship between political conflict and bilateral trade has often been cast into a dichotomy between the realist and liberal schools of thought. We investigate the trade-conflict nexus in the context of the South China Sea dispute between China and the Philippines, focusing on the changes in Filipino exports to China after the Scarborough Shoal standoff from April 2012 to June 2016. This paper uses trade data from the China Customs Database and the Synthetic Difference-in-Differences (SDiD) estimator to quantitatively assess the negative treatment effect on Filipino exports to China from 2012 to 2016. Contrary to previous studies, we found no significant negative treatment effect in both the immediate aftermath of the conflict and the long run. This supports the predictions of liberal IR scholars that territorial dispute does not exert a significant disruptive effect on bilateral trade even as the conflict persists.