Pavel Chakraborty (Lancaster University) - War and Transnational Reshoring

BOFIT seminars

BOFIT Seminar - Pavel Chakraborty (Lancaster University) - War and Transnational Reshoring

Co-authors:  Anindya S. Chakrabarti (Indian Institute of Management, Ahmedabad) and Avi Dutt (Trademo Technologies)

Abstract
War and violence disrupts trade flows of the country or countries which are engaged in those. But do they also affect the trade patterns of a third country who is not a party, say to the war? We show this indeed happens. Following the start of the Russia-Ukraine war in February 2022 and the resulting sanctions issued by the EU and US, Russia redirected its demand for certain products such as leather, to India who was not directly exposed to the war and the sanction(s). Utilizing monthly firm-destination level information we show that in response to this demand shock, Indian firms redirected or reshored their sales of leather goods from relatively unimportant export destinations such as Oceania, South-east Asia, Africa, Caribbean to Russia while keeping the major destinations -- primarily Europe and the US -- undisturbed. Exports of leather goods from India to Russia went up by 180% -- due to both quantity and price rise. A bulk of this change is driven by the incumbent exporters. This paper, possibly for the first time, presents evidence that war not only affects trade patterns of the countries affected, but also of a third country.

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