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The geography of conflicts and free trade agreements

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

Abstract

We analyze the interaction of economic and political determinants of free trade agreements (FTA). In addition to standard trade gains, FTAs can promote peaceful relations by offering a political forum and by increasing the opportunity cost of conflicts that disrupt trade. If policy makers believe in such pacifying effects of FTAs, country pairs with large trade gains from FTAs and a high probability of conflict are more likely to sign a FTA. Using data on the 1950-2000 period, we show that this complementarity between economic and political gains is at work in the geography of FTAs. Country pairs characterized by a high frequency of old wars - which we use as a proxy of the latent probability of conflict - are shown to be more likely to sign FTAs, the more so the higher the trade gains from a FTA. These trade gains are estimated by a theory-driven empirical strategy to disentangle them from the political factors. We also show that, contrary to old wars, recent wars make it more difficult to negotiate a FTA. This suggests the existence of windows of opportunity to lock in FTAs and peace. Finally, multilateral trade openness, because it reduces the opportunity cost of bilateral conflict, increases the political incentive to sign FTAs.

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Bibliographic Info

Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 1019.

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Length: 36 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:cpm:docweb:1019

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Keywords: Free Trading Arrangements; Trade; War;

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References

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  1. Vincent Vicard, 2006. "Trade, Conflicts, and Political Integration: the Regional Interplays," CESifo Working Paper Series 1839, CESifo Group Munich.
  2. Marco Fugazza & Frédéric Robert-Nicoud, 2011. "The ‘emulator effect’ of the Uruguay round on US regionalism," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 11111, Institut d'Economie et Econométrie, Université de Genève.
  3. Collier, Paul & Hoeffler, Anke & Soderbom, Mans, 2001. "On the duration of civil war," Policy Research Working Paper Series 2681, The World Bank.
  4. Enrico Spolaore & Romain Wacziarg, 2009. "War and Relatedness," NBER Working Papers 15095, National Bureau of Economic Research, Inc.
  5. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does regionalism affect trade liberalization towards non-members?," LSE Research Online Documents on Economics 19584, London School of Economics and Political Science, LSE Library.
  6. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
  7. Baldwin, Richard & Jaimovich, Dany, 2009. "Are Free Trade Agreements Contagious?," CCES Discussion Paper Series 12, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  8. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI.
  9. Martin, Philippe & Mayer, Thierry & Thoenig, Mathias, 2005. "Make trade not war ?," CEPREMAP Working Papers (Docweb) 0515, CEPREMAP.
  10. Guy Michaels & Xiaojia Zhi, 2010. "Freedom Fries," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 256-81, July.
  11. Vicard, Vincent, 2012. "Trade, conflict, and political integration: Explaining the heterogeneity of regional trade agreements," European Economic Review, Elsevier, vol. 56(1), pages 54-71.
  12. Mansfield, Edward D. & Pevehouse, Jon C., 2000. "Trade Blocs, Trade Flows, and International Conflict," International Organization, Cambridge University Press, vol. 54(04), pages 775-808, September.
  13. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
  14. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  15. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
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Cited by:
  1. Vicard, Vincent, 2012. "Trade, conflict, and political integration: Explaining the heterogeneity of regional trade agreements," European Economic Review, Elsevier, vol. 56(1), pages 54-71.
  2. Lan, Xiaohuan & Li, Ben, 2011. "Nationalism and international trade: theory and evidence," MPRA Paper 36412, University Library of Munich, Germany, revised 03 Feb 2012.
  3. Baldwin, Richard & Jaimovich, Dany, 2009. "Are Free Trade Agreements Contagious?," CCES Discussion Paper Series 12, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  4. Marco Fugazza & Frédéric Robert-Nicoud, 2010. "The 'emulator effect' of the Uruguay round on US regionalism," LSE Research Online Documents on Economics 28723, London School of Economics and Political Science, LSE Library.
  5. Florian Mölders, 2012. "On the Path to Trade Liberalization: Political Regimes in International Trade Negotiations," Discussion Papers of DIW Berlin 1245, DIW Berlin, German Institute for Economic Research.

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