Regional economic spillovers from the South Sudanese civil war: Evidence from formal and informal cross border trade

Just two and a half years after gaining independence in July 2011, South Sudan’s civil war broke out on the 15th of December 2013. Since then, the conflict has fuelled a humanitarian crisis resulting in devastating social and economic consequences. Beyond claiming tens of thousands of victims and leaving more than a third of the country’s population forcibly displaced, the conflict has led to a contraction of the country’s real GDP by more than 5 percent on average over the last five years. Today South Sudan is one of the poorest nations in the world, ranking 186 out of 189 countries in the Human Development Index.

In addition to its impact on South Sudan itself, the crisis is likely to have impacted the country’s neighbours: Ample anecdotal evidence suggests that the crisis had economic consequences for the rest of the region through channels like refugee flows, increased military spending and deployment as well as trade disruptions.

This project aims to contribute to a better understanding of the regional economic spillovers of the South Sudanese civil war by examining its impact on trade in the region. We proceed in two steps:

• First, we employ a gravity model to examine the impact of civil conflict on the trade of neighbouring countries and conduct a counterfactual simulation for the South Sudanese case. We show that an increase in the number of violent events to 2014 levels in 2012 (the last full pre-conflict year) would have reduced exports of neighbours to South Sudan by almost 9 percent.
• In a second step we conduct a case study for the impact of the conflict on Uganda. Here, we take advantage of unique survey data on informal cross-border trade as well as formal customs data and exploit the spatial and time variation of the conflict for causal identification.

Our first result is that while the civil war had a sizeable negative impact on both formal and informal Ugandan exports the latter was hit much harder: Our estimates suggest reductions of formal exports to South Sudan and Sudan by about 12 percent while informal exports to South Sudan were reduced by close to 80 percent compared to trade flows not exposed to the conflict. Converting these losses into monetary values, these figures suggest a reduction of Uganda’s total informal exports by a staggering 25 percent, while total formal exports were reduced by about two percent as a consequence of the conflict.

Our second result is that the impact of the conflict on Uganda’s formal exports is driven entirely by a reduction of industrial goods exports. Exports of agricultural commodities continued to flow.