CanMarketsOvercomeRepugnance? IslamicTrade ResponsetoAnti...

Can Markets Overcome Repugnance? Islamic TradeResponse to Anti-Muslim Cartoons

Daniel Chen 1

1Toulouse IAST

Chen Can Markets Overcome Repugnance? 1 / 34

Markets and Morals

• Burgeoning literature in optimal policy design on the repugnance ofcertain institutional arrangements (Roth 2007; Mankiw and Weinzierl2010)

I What policy levers mitigate repugnance?I Sacred values (Department of Defense response to insurgency)I Backlash (Benabou and Tirole 2012; Chen, Levonyan, and Yeh 2014)

I Do markets affect moral attitudes?I A competitive market, with its disruptive effect on geographical and

tribal isolation, will actually have morally improving effects, increasingour care for and understanding of others

I Doux Commerce Thesis (Smith, Montesquieu, Paine, Mill, Hume)


Repugnance Shock

• Growing body of research examine the effect of markets on moralattitudes

I social preferences (Henrich et. al. 2001)I morality (Shleifer 2004)I moral judgment (Chen 2011)I other-regarding behavior (willingness to kill mice) (Falk and Szech

2013)

• This paper does the reverse: examines a shock on moral attitudes andstudies the subsequent dynamic market response.

I Contributes to a literature onI the economic consequences of religious beliefs (Campante and

Yanagizawa-Drott 2015)I whether there are there fixed costs to trade (Melitz 2003)I impacts of free speech (Chen and Yeh 2015)


Results in Nutshell

• Danish publication of Jyllands-Posten Muhammad cartoons lead todecrease in Danish exports to Muslim countries of 40%

• No decrease in Danish imports from Muslim countries• Heterogeneity: bigger response in more Muslim countries and insubstitutable products

• Transient: only 20 months before reverting to previous trend on theintensive margin

I No apparent substitution to other trading partnersI Extensive margin and total margin show permanent drop (within time

frame of our data)


Outline

1 Conceptual Framework

2 Background

3 Results

4 Heterogeneity

5 Substitution


Doux Commerce Thesis

• Commerce increases moralityI Proponents of the so-called doux commerce thesis have proposed that

a competitive market, with its disruptive effect on geographical andtribal isolation, will actually have morally improving effects, increasingour care for and understanding of others

I Smith, Montesquieu, Paine, Mill, Hume

• Commerce decreases moralityI It has been asserted that competition may bring a winner-take-all

mentality and a lack of concern for others or that exposure to marketvalues will lead us to abandon non utilitarian forms of moral thought,treating every moral issue instead in terms of costs and benefits.

I Schumpeter, Hayek, Veblen, Marx, Simmel


Deontological vs. Utilitarian

• Market competition may be perceived to be unfair early in the courseof economic development

I Globalization and market integration may increase morality insmall-scale societies (Henrich et al. 2001)

I Competition later becomes perceived as fair (Zingales 2011); in DG,Berkeley students reward hard work while Kenyans did not (Jakiela2009)

I Manipulation of the affective state alters moral judgmentI Negative emotions cause deontological responses to moral judgments

(Wheatley and Haidt 2005, Schnall, Haidt and Clore 2005)I Positive emotions generate utilitarian responses (Valdesolo and

DeSteno 2006)I A positive feedback between competition, productive efficiency, and

utilitarian commitments arises when utilitarianism leads to competitivestructures

I Transient response to shocks when there is negative feedback,permanent response when there is positive feedback


Model

• Proportion of population making deontological choice xI Degree of economic competition cI Temporarily perturb c or x by ε

• At low incomesI x ′(c)> 0 (competition is unfair, unfamiliar, triggering deontological

commitments)I But c ′(x)< 0 (deontological commitments lead to non-competitive

structures)I Growth trap (3rd world)

• At high incomesI x ′(c)< 0 (competition is fair, familiar, triggering utilitarian

commitments)I And c ′(x)< 0 (utilitarian commitments lead to competitive structures)I Multiple equilibria

I High competition, high utilitarian, high growth (1st world)I Low competition, low utilitarian, low growth (2nd world)


Jyllands-Posten Muhammad controversy

• Jyllands-Posten Muhammad cartoons published on September 30,2005

I Graphic representations considered blasphemous

• Violent demonstrations and riots in January and February 2006.• Danish exports dumped in the Middle East (50% decline)• 2006 Pew Global Attitudes survey found most people in Muslimcountries had heard of it (Egypt 98%, Jordan 99%, Pakistan 87%,Turkey 89%)

I Most placed sole blame on Western nations’ disrepect for Islamicreligion (Egypt 87%, Jordan 90%, Turkey 84%) instead of Muslims’intolerance to different points of view (Germany 62%, France, 67%, US60%)

I Media and word-of-mouth played key role in information transmission


Backlash


Export to muslim and non-muslim countries


Import from muslim and non-muslim countries


Month-by-month effects


Export to muslim and non-muslim countries


Specification

Y ijpt = β0+β1Denmarki +β2Muslimj +β3Postt +β4DenmarkiMuslimj+

β5DenmarkiPostt +β6MuslimjPostt +β7DenmarkiMuslimjPostt+

β8Post2t+β9DenmarkiPost2t+β10MuslimjPost2t+β11DenmarkiMuslimjPost2t+Controls+εijpt

• Yijpt : log trade flows (intensive, extensive, total margin)I Eurostat data, missing treated as 0

• Muslimj : Muslim Population Share > 80%• Postt : After 9/2005• Post2t : 20 months later• Controls:Countryi X Partnerj X Productp , Countryi ∗Montht• Sum of all country exports per product to all Muslim countries vs. non-Muslim

countries, controlling for Countryi X Muslimj X Productp• Test for β7 and for β7+β11• Cluster standard errors at country level, country-product level for Nordic

sub-sample


Intensive margin

Base model Reporter time trends North Sample North Sample + trendsMuslim X Denmark (t>0) -0.231∗∗∗ -0.238∗∗∗ -0.471∗∗∗ -0.475∗∗∗

(0.0326) (0.0320) (0.134) (0.136)

Muslim X Denmark (t>20) 0.246∗∗∗ 0.247∗∗∗ 0.395∗∗∗ 0.392∗∗∗(0.0348) (0.0347) (0.131) (0.127)

Observations 691286 691286 85477 85477No. of clusters 28 28 549 549P-value (t>0) 0.000 0.000 0.000 0.001P-value (t>0 + t>20) 0.699 0.815 0.619 0.585

Standard errors in parentheses∗ p < 0.10, ∗∗ p < 0.05, ∗∗∗ p < 0.01


Total margin

Base model Reporter time trends North Sample North Sample + trendsMuslim X Denmark (t>0) -0.620∗∗∗ -0.620∗∗∗ -0.726∗∗ -0.726∗∗

(0.0885) (0.0885) (0.298) (0.298)

Muslim X Denmark (t>20) 0.361∗∗∗ 0.361∗∗∗ 0.348 0.348(0.0663) (0.0663) (0.236) (0.235)




Extensive margin

Base model Reporter time trends North Sample North Sample + trendsMuslim X Denmark (t>0) -0.0393∗∗∗ -0.0393∗∗∗ -0.0260 -0.0260

(0.00832) (0.00832) (0.0225) (0.0226)

Muslim X Denmark (t>20) 0.0131∗∗ 0.0131∗∗ -0.00285 -0.00285(0.00478) (0.00478) (0.0197) (0.0197)




Heterogeneity by product category


Muslim Country


Nordic Sample → Muslim


All Countries → Muslim


Nordic Sample → Non-Muslim


All Countries → Non-Muslim


Summary

• Conceptual framework where shocks to deontological views can havepositive or negative feedbacks

• Many papers examine the effect of markets on moralsI This paper examines the effect of morals attitudes on markets

I the economic consequences of religious beliefs (Campante andYanagizawa-Drott 2015)

I whether there are there fixed costs to trade (Melitz 2003)I impacts of free speech (Chen and Yeh 2015)

• Danish publication of Jyllands-Posten Muhammad cartoons lead todecrease in Danish exports to Muslim countries of 40%

I No decrease in Danish imports from Muslim countriesI No apparent substitution from Denmark to other trading partners

• Heterogeneity: bigger response in more Muslim countries and insubstitutable products

• Transient: only 20 months before reverting to previous trend on theintensive margin

I Extensive margin and total margin show a more permanent dropChen Can Markets Overcome Repugnance? 34 / 34

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