The Impact of Armed Conflict Shocks on Local Cross-Border Trade: Evidence from the Border between Uganda and the Democratic Republic of Congo

Export revenue from small-scale cross-border trading activities is a critical source of income to households in often remote and disconnected border regions of sub-Saharan Africa. This paper examines how this type of trade is affected by changes in market conditions driven by conflict spikes on the other side of the border. Combining a unique dataset on monthly daytime small-scale cross-border trade between Uganda and the Democratic Republic of Congo (DRC) with georeferenced data of conflict events in the DRC, I investigate whether changes over time in the relative exposure to armed conflict shocks at different border posts explain differences in the evolution of local exports from Uganda to the DRC. Combining instrumental variable and difference-in-differences estimation strategies, I confirm that an increase in exposure to armed conflict activity has a large negative effect on daytime exports. Estimates vary depending on how nonclassical measurement error prevalent in most measures of conflict is accounted for.