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Make Trade not War?

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Author Info
Martin, Philippe
Mayer, Thierry
Thoenig, Mathias

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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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5218.

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Date of creation: Sep 2005
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Handle: RePEc:cpr:ceprdp:5218

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Related research
Keywords: globalization trade war

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration

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References listed on IDEAS
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  2. Gregory D. Hess & Athanasios Orphanides, 2001. "War and Democracy," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 776-810, August. [Downloadable!] (restricted)
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  3. Herschel I. Grossman, 2003. "Choosing Between Peace and War," NBER Working Papers 10180, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Baldwin, R E & Murray, Tracy, 1977. "MFN Tariff Reductions and Developing Country Trade Benefits under the GSP," Economic Journal, Royal Economic Society, vol. 87(345), pages 30-46, March. [Downloadable!] (restricted)
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  7. Rose, Andrew K, 2003. "Which International Institutions Promote International Trade?," CEPR Discussion Papers 3764, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
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  12. Hess, Gregory D & Orphanides, Athanasios, 1995. "War Politics: An Economic, Rational-Voter Framework," American Economic Review, American Economic Association, vol. 85(4), pages 828-46, September. [Downloadable!] (restricted)
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  14. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April. [Downloadable!] (restricted)
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  15. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
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  16. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Leonardo Raffo López, 2007. "El modelo de Skaperdas y Syropoulos," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 9(17), pages 153-181, July-Dece. [Downloadable!]
  2. Mirza, Daniel & Verdier, Thierry, 2007. "Are Lives a Substitute for Livelihoods? Terrorism, Security and US Bilateral Imports," CEPR Discussion Papers 6173, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Anna Maria Mayda & Chad Steinberg, 2007. "Do South-South Trade Agreements Increase Trade? Commodity-Level Evidence from COMESA," IMF Working Papers 07/40, International Monetary Fund. [Downloadable!]
    Other versions:
  4. Vincent Vicard, 2006. "Trade, Conflicts, and Political Integration: the Regional Interplays," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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