Trade does promote peace: New simultaneous estimates of the reciprocal effects of trade and conflict
AbstractTwo 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 authorsâ€™ 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 nationsâ€™ 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 tradersâ€™ rational expectations of violence. Previous studies that address the endogeneity of trade by controlling for the years of peace â€” as virtually all have done since 1999 â€” have not overstated the benefit of interdependence. Commerce promotes peace because violence has substantial costs, whether these are paid prospectively or contemporaneously.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Peace Research Institute Oslo in its journal Journal of Peace Research.
Volume (Year): 47 (2010)
Issue (Month): 6 (November)
Contact details of provider:
Web page: http://www.prio.no/
economic interdependence; interstate disputes; liberal peace; omitted variable bias; reciprocal causation;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Shali Luo & J. Isaac Miller, 2013.
"On the Spatial Correlation of International Conflict Initiation and Other Binary and Dyadic Dependent Variables,"
1306, Department of Economics, University of Missouri.
- Luo, Shali & Miller, J. Isaac, 2014. "On the spatial correlation of international conflict initiation and other binary and dyadic dependent variables," Regional Science and Urban Economics, Elsevier, vol. 44(C), pages 107-118.
- Oloufade, Djoulassi K., 2012. "Trade Openness, Conflict Risk and Income Inequality," MPRA Paper 40702, University Library of Munich, Germany, revised Feb 2013.
- 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.
- Mahvash Saeed Qureshi, 2009.
"Trade and Thy Neighbor's War,"
IMF Working Papers
09/283, International Monetary Fund.
- 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.
- 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.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SAGE Publications).
If references are entirely missing, you can add them using this form.