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Make trade not war ?

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Author Info

  • Martin, Philippe
  • Mayer, Thierry
  • Thoenig, Mathias

Abstract

This paper analyses theoretically and empirically the relationship between trade and war. We show that the intuition that trade promotes peace is only partially true even in a model where trade is beneficial to all, war reduces trade and leaders take into account the costs of war. When war can occur because of the presence of asymmetric information, the probability of escalation is indeed lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains. However, countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country. Using a theoretically-based econometric model, we test our predictions on a large dataset of military conflicts in the period 1948-2001. We find strong evidence for the contrasting effects of bilateral and multilateral trade. Our empirical results also confirm our theoretical prediction that multilateral trade openness increases more the probability of war between proximate countries. This may explain why military conflicts have become more localized and less global over time.

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Bibliographic Info

Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 0515.

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Length: 42 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:cpm:docweb:0515

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Keywords: globalization; trade and war;

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References

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  1. Gregory D. Hess, 2003. "The Economic Welfare Cost of Conflict: An Empirical Assessment," CESifo Working Paper Series 852, CESifo Group Munich.
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  8. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
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  10. Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 682-698, 09.
  11. Shang-Jin Wei & Arvind Subramanian, 2003. "The WTO Promotes Trade, Strongly But Unevenly," IMF Working Papers 03/185, International Monetary Fund.
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  18. Alberto Alesina & Enrico Spolaore, 1995. "On the Number and Size of Nations," NBER Working Papers 5050, National Bureau of Economic Research, Inc.
  19. Garfinkel, Michelle R, 1994. "Domestic Politics and International Conflict," American Economic Review, American Economic Association, vol. 84(5), pages 1294-1309, December.
  20. Alesina, Alberto & Spolaore, Enrico, 2006. "Conflict, defense spending, and the number of nations," European Economic Review, Elsevier, vol. 50(1), pages 91-120, January.
  21. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
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  24. repec:rus:hseeco:123558 is not listed on IDEAS
  25. Olivier Compte & Philippe Jehiel, 2004. "Inefficiencies in Bargaining: Departing from Akerlof and Myerson-Satterthwaite," Levine's Bibliography 122247000000000744, UCLA Department of Economics.
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