Modeling the effects of military tension on foreign trade: Some preliminary empirical findings from the Greek-Turkish rivalry

In this paper we examine the effects of irreversibility on foreign trade in the case where there are two sources of uncertainty. The two sources considered in this paper are uncertainty arising from business risk and uncertainty arising from military tension. The resulting insights are then used to model the import markets of Greece and Turkey. These models are then empirically estimated, in order to ascertain, on the one hand whether there is evidence that irreversibility is indeed a factor on the supply side of these markets, and on the other hand, the direction of the incidence of military tension on foreign trade. An index of military tension is used for the two countries, based on the number of airspace violations by Turkish military aircraft of Greek airspace.