Tuesday, November 2, 2010

The Dalai Lama Effect on International Trade

The Chinese government frequently threatens that meetings between its trading partners’ officials and the Dalai Lama will be met with animosity and ultimately harm trade ties with China. We run a gravity model of exports to China from 159 partner countries between 1991 and 2008 to test to which extent bilateral tensions affect trade with autocratic China. In order to account for the potential endogeneity of meetings with the Dalai Lama, the number of Tibet Support Groups and the travel pattern of the Tibetan leader are used as instruments. Our empirical results support the idea that countries officially receiving the Dalai Lama at the highest political level are punished through a reduction of their exports to China. However, this ‘Dalai Lama Effect’ is only observed for the Hu Jintao era and not for earlier periods. Furthermore, we find that this effect is mainly driven by reduced exports of machinery and transport equipment and that it disappears two years after a meeting took place.

Very interesting and surprising! Read the full paper here

Their hypotheses are

  • There is a trade-deteriorating effect caused by foreign officials receiving the Dalai Lama.
  • The detrimental effect of Dalai Lama meetings on trade grows with the rank of the dignitary met.
  • The trade-deteriorating ‘Dalai Lama Effect’ disappears as bilateral relations between China and partner countries recover.

So, China punishes countries if their high level officials meet the Dalai Lama!