Beyond Conflict: The Heterogeneous Impact of Instability Sources on Middle East Trade

This study examines how different sources of instability affect trade performance in the Middle East. The analysis distinguishes between violent conflicts – interstate wars and domestic conflicts – and exogenous global shocks. Using a panel dataset covering 17 Middle Eastern economies over the period 1970–2022, the study applies the Generalised Additive Model for Location, Scale and Shape (GAMLSS) with a Box–Cox–Cole–Green (BCCG) distribution to account for non-normal trade outcomes. This approach simultaneously estimates effects on the mean, volatility, and tail behaviour of trade share. The results reveal a heterogeneous pattern: wars and domestic conflicts significantly reduce trade share, while global crises temporarily increase it via a denominator effect during domestic economic contraction. Inflation is a critical determinant; a one-standard-deviation increase is associated with an estimated 35.8 % decline in trade share, while the onset of war reduces trade by 17.7 %. Findings further reveal a nonlinear relationship where high-inflation episodes disproportionately weaken trade. These results demonstrate that mean-based models underestimate economic costs by ignoring volatility and tail risk. These findings highlight the importance of distribution-sensitive modelling for understanding how shocks reshape trade dynamics in the Middle East and suggest that macroeconomic stabilization is vital for preserving trade integration during instability.