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Trade does promote peace: New simultaneous estimates of the reciprocal effects of trade and conflict

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Author Info

  • HÃ¥vard Hegre

    (Department of Political Science, University of Oslo Center for the Study of Civil War, Peace Research Institute Oslo (PRIO))

  • John R Oneal

    (Department of Political Science, The University of Alabama, joneal@bama.ua.edu)

  • Bruce Russett

    (Department of Political Science, Yale University)

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    Abstract

    Two studies question whether economic interdependence promotes peace, arguing that previous research has not adequately considered the endogeneity of trade. Using simultaneous equations to capture the reciprocal effects, they report that trade does not reduce conflict, though conflict reduces trade. These results are puzzling on logical grounds. Trade should make conflict less likely, ceteris paribus, if interstate violence adversely affects commerce; otherwise, national leaders are acting irrationally. In re-analyzing the authors’ data, this article shows that trade does promote peace once the gravity model is incorporated into the analysis of conflict. Both trade and conflict are influenced by nations’ sizes and the distance separating them, so these fundamental exogenous factors must be included in models of conflict as well as trade. One study errs in omitting distance when explaining militarized disputes. The other does not adequately control for the effect of size (or power). When these theoretically informed changes are made, the pacific benefit of trade again appears. In new simultaneous analyses, the article confirms that trade promotes peace and conflict contemporaneously reduces commerce, even with extensive controls for traders’ rational expectations of violence. Previous studies that address the endogeneity of trade by controlling for the years of peace — as virtually all have done since 1999 — have not overstated the benefit of interdependence. Commerce promotes peace because violence has substantial costs, whether these are paid prospectively or contemporaneously.

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    Bibliographic Info

    Article provided by Peace Research Institute Oslo in its journal Journal of Peace Research.

    Volume (Year): 47 (2010)
    Issue (Month): 6 (November)
    Pages: 763-774

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    Handle: RePEc:sae:joupea:v:47:y:2010:i:6:p:763-774

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    Web page: http://www.prio.no/

    Related research

    Keywords: economic interdependence; interstate disputes; liberal peace; omitted variable bias; reciprocal causation;

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    Cited by:
    1. Geesche M. Merkle & Rico Ihle & Yael Kachel & Ulf Liebe, 2013. "Economic cooperation despite of political conflict: Israeli traders’ perception of Israeli-Palestinian food trade," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 151, Courant Research Centre PEG.
    2. Mahvash Saeed Qureshi, 2009. "Trade and Thy Neighbor's War," IMF Working Papers 09/283, International Monetary Fund.
    3. Moons, S.J.V. & van Bergeijk, P.A.G., 2013. "A meta-analysis of economic diplomacy and its effect on international economic flows," ISS Working Papers - General Series 50074, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    4. Shali Luo & J. Isaac Miller, 2013. "On the Spatial Correlation of International Conflict Initiation and Other Binary and Dyadic Dependent Variables," Working Papers 1306, Department of Economics, University of Missouri.
    5. Oloufade, Djoulassi K., 2012. "Trade Openness, Conflict Risk and Income Inequality," MPRA Paper 40702, University Library of Munich, Germany, revised Feb 2013.
    6. Massoud Tansa G. & Magee Christopher S., 2012. "Trade and Political, Military, and Economic Relations," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 18(1), pages 1-39, May.
    7. Raymond Fisman & Yasushi Hamao & Yongxiang Wang, 2014. "Nationalism and Economic Exchange: Evidence from Shocks to Sino-Japanese Relations," NBER Working Papers 20089, National Bureau of Economic Research, Inc.

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