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International Trade and Transnational Insecurity: How Comparative Advantage and Power are Jointly Determined

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Author Info
Michelle R. Garfinkel ()
Stergios Skaperdas ()
Constantinos Syropoulos ()

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Abstract

We augment the canonical neoclassical model of trade to allow for interstate disputes over land, oil, water, or other resources. The costs of such disputes in terms of arming depend on the trade regime in place. Under either autarky or free trade, the larger country (in terms of factor endowments) need not to be more powerful. Yet, under free trade, there is a stronger tendency for arming incentives to be equalized and thus for a “leveling of the playing field.” Depending on world prices, free trade can intensify arming incentives to such an extent that the additional security costs swamp the traditional gains from trade and thus render autarky more desirable for one or both rival states. Furthermore, contestation of resources can reverse a country’s apparent comparative advantage relative to its comparative advantage in the absence of conflict. And, where such conflict is present, comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2680.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2680

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Related research
Keywords: trade openness; property rights; interstate disputes; conflict; security policies;

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Find related papers by JEL classification:
D30 - Microeconomics - - Distribution - - - General
D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
F10 - International Economics - - Trade - - - General
F20 - International Economics - - International Factor Movements and International Business - - - General

References listed on IDEAS
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  1. Brander, James A. & Scott Taylor, M., 1997. "International trade between consumer and conservationist countries," Resource and Energy Economics, Elsevier, vol. 19(4), pages 267-297, November. [Downloadable!] (restricted)
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  2. Kolstad, Charles D & Mathiesen, Lars, 1987. "Necessary and Sufficient Conditions for Uniqueness of a Cournot Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 54(4), pages 681-90, October. [Downloadable!] (restricted)
  3. Garfinkel, Michelle R. & Skaperdas, Stergios & Syropoulos, Constantinos, 2008. "Globalization and domestic conflict," Journal of International Economics, Elsevier, vol. 76(2), pages 296-308, December. [Downloadable!] (restricted)
    Other versions:
  4. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April. [Downloadable!] (restricted)
  5. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Blackwell Publishing, vol. 75(3), pages 865-900, 07. [Downloadable!] (restricted)
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  6. Anbarci, Nejat & Skaperdas, Stergios & Syropoulos, Constantinos, 2002. "Comparing Bargaining Solutions in the Shadow of Conflict: How Norms against Threats Can Have Real Effects," Journal of Economic Theory, Elsevier, vol. 106(1), pages 1-16, September. [Downloadable!] (restricted)
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  7. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557. [Downloadable!] (restricted)
  8. Skaperdas, Stergios, 1996. "Contest Success Functions," Economic Theory, Springer, vol. 7(2), pages 283-90, February.
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  9. James E. Anderson & Douglas Marcouiller, 2005. "Anarchy And Autarky: Endogenous Predation As A Barrier To Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 189-213, 02. [Downloadable!] (restricted)
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  10. Stergios Skaperdas & Constantinos Syropoulos, 2002. "Insecure Property and the Efficiency of Exchange," Economic Journal, Royal Economic Society, vol. 112(476), pages 133-146, January. [Downloadable!] (restricted)
  11. Demsetz, Harold, 1969. "Information and Efficiency: Another Viewpoint," Journal of Law & Economics, University of Chicago Press, vol. 12(1), pages 1-22, April.
  12. James A. Brander & M. Scott Taylor, 1997. "International Trade and Open-Access Renewable Resources: The Small Open Economy Case," Canadian Journal of Economics, Canadian Economics Association, vol. 30(3), pages 526-52, August. [Downloadable!] (restricted)
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  13. Hotte, Louis & Long, Ngo Van & Tian, Huilan, 2000. "International trade with endogenous enforcement of property rights," Journal of Development Economics, Elsevier, vol. 62(1), pages 25-54, June. [Downloadable!] (restricted)
  14. Gregory D. Hess, 2003. "The Economic Welfare Cost of Conflict: An Empirical Assessment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  15. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, 01. [Downloadable!] (restricted)
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  16. Stergios Skaperdas & Constantinos Syropoulos, 2001. "Guns, Butter, and Openness: On the Relationship between Security and Trade," American Economic Review, American Economic Association, vol. 91(2), pages 353-357, May. [Downloadable!] (restricted)
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