Detecting Illegal Arms Trade / Stefano DellaVigna, Eliana La Ferrara.

By:

DellaVigna, Stefano

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w13355.Publication details: Cambridge, Mass. National Bureau of Economic Research 2007.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: Illegal arms are responsible for thousands of deaths in civil wars every year. Yet, their trade is very hard to detect. We propose a method to statistically detect illegal arms trade based on the investor knowledge embedded in financial markets. We focus on eight countries under UN arms embargo in the period 1990-2005, and analyze eighteen events during the embargo that suddenly increase or decrease conflict intensity. If the weapon-making companies are not trading or are trading legally, an event worsening the hostilities should not affect their stock prices or affect them adversely, since it delays the removal of the embargo. Conversely, if the companies are trading illegally, the event may increase stock prices, since it increases the demand for illegal weapons. We detect no significant effect overall. However, we find a large and significant positive reaction for companies head-quartered in countries where the legal and reputation costs of illegal trades are likely to be lower. We identify such countries using measures of corruption and transparency in arms trade. We also suggest a method to detect potential embargo violations based on stock reactions by individual companies, including chains of reactions. The presumed violations are higher for conflicts with more UN investigations and for companies with more Internet stories regarding embargo.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w13355 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

August 2007.

Illegal arms are responsible for thousands of deaths in civil wars every year. Yet, their trade is very hard to detect. We propose a method to statistically detect illegal arms trade based on the investor knowledge embedded in financial markets. We focus on eight countries under UN arms embargo in the period 1990-2005, and analyze eighteen events during the embargo that suddenly increase or decrease conflict intensity. If the weapon-making companies are not trading or are trading legally, an event worsening the hostilities should not affect their stock prices or affect them adversely, since it delays the removal of the embargo. Conversely, if the companies are trading illegally, the event may increase stock prices, since it increases the demand for illegal weapons. We detect no significant effect overall. However, we find a large and significant positive reaction for companies head-quartered in countries where the legal and reputation costs of illegal trades are likely to be lower. We identify such countries using measures of corruption and transparency in arms trade. We also suggest a method to detect potential embargo violations based on stock reactions by individual companies, including chains of reactions. The presumed violations are higher for conflicts with more UN investigations and for companies with more Internet stories regarding embargo.