Conference Paper

Direct and Indirect Effects of Conflicts on Firms: Evidence from Turkish Transaction Data

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No.

ERF30_83

Publisher

ERF

Date

March, 2024

Abstract
Author(s)

In this paper, we adopt a production network approach by using firm-to-firm transaction data available for Turkish firms over the period 2006-2021 to understand the direct and indirect - through firm-to-firm input-output linkages - effects of firms’ exposure to conflicts in a specific district (ilce) on their economic outcomes. To motivate our empirical analysis, we theoretically model an economy with two symmetric regions where conflicts in one region directly affect the local input producing firms and indirectly - through the input-output network - also affect sales of downstream firms in the non-conflict region, due to an increase in the average price of intermediate inputs available. Our empirical results, accordingly, show that Turkish firms in affected districts experience a reduction of their sales and number of customers, especially outside their district. This contraction in the local economic activity of firms propagates to customers located in non-conflict areas outside the affected district. The latter firms also experience a contraction of sales following the increase in the conflict intensity at the suppliers’ districts.