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BOK Working Paper No.2020-25, The Economic Costs of Diplomatic Conflict

Economic Research Institute (82-2-759-5364) 2020.11.26 2340

Title : The Economic Costs of Diplomatic Conflict

Author : Hyejin Kim(BOK), Jungmin Lee(Seoul National University) 


We examine the economic impact of the diplomatic conflict using the THAAD crisis between South Korea and China as a case study. Using the synthetic control method, we estimate the conflict’s impacts on Chinese tourists to Korea and stock prices of China-related Korean firms. We find that a negative effect on the inflow of tourists appeared with a lag of 3 months after the announcement of the decision and persisted for about 18 months. On the other hand, the impacts on the stock market appeared immediately, but insignificant and short-lived.