Abstract
Empirical evidence on the consequences of trade wars is largely confined to short-run horizons, leaving the long-run costs largely unknown. We study the trade war between Italy and France (1888-1898), a sharp bilateral disruption in trade policy for which data are available over more than two decades after its onset. Combining structural gravity estimation, a multi-country general equilibrium model, and synthetic control methods, we find that trade between Italy and France fell by about 58% during the conflict and remained at similarly depressed levels up to the eve of the First World War. The bilateral collapse was only weakly offset through reallocation toward third markets. As a result, Italy’s total trade remained roughly 12-16% below its counterfactual level. This conclusion is stable across alternative calibrations and closely aligned with an independent synthetic-control counterfactual, providing a long-run empirical benchmark for assessing the aggregate consequences of trade wars.
Rodolfo G. Campos
Economist
My research interests include macroeconomics, social insurance, and international economics.