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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 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 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 a bilateral conflict, increases the political incentive to sign FTAs.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7740.

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Date of creation: Mar 2010
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Handle: RePEc:cpr:ceprdp:7740

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Keywords: free trading arrangements; Trade; War;

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References

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  1. Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," Working Paper 2005-03, Federal Reserve Bank of Atlanta.
  2. 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.
  3. Baldwin, Richard & Jaimovich, Dany, 2010. "Are Free Trade Agreements Contagious?," CEPR Discussion Papers 7904, C.E.P.R. Discussion Papers.
  4. Vincent Vicard, 2006. "Trade, Conflicts, and Political Integration: the Regional Interplays," CESifo Working Paper Series 1839, CESifo Group Munich.
  5. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  6. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI.
  7. Fugazza, Marco & Robert-Nicoud, Frédéric, 2010. "The 'Emulator Effect' of the Uruguay Round on US Regionalism," CEPR Discussion Papers 7703, C.E.P.R. Discussion Papers.
  8. Enrico Spolaore & Romain Wacziarg, 2012. "War and Relatedness," Discussion Papers Series, Department of Economics, Tufts University 0769, Department of Economics, Tufts University.
  9. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 865-900.
  10. Collier, Paul & Hoeffler, Anke & Soderbom, Mans, 2001. "On the duration of civil war," Policy Research Working Paper Series 2681, The World Bank.
  11. 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.
  12. Guy Michaels & Xiaojia Zhi, 2007. "Freedom fries," LSE Research Online Documents on Economics 51598, London School of Economics and Political Science, LSE Library.
  13. 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.
  14. 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.
  15. Vincent Vicard, 2008. "Trade, conflicts and political integration : explaining the heterogeneity of regional trade agreements," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00270618, HAL.
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Citations

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Cited by:
  1. Baldwin, Richard & Jaimovich, Dany, 2012. "Are Free Trade Agreements contagious?," Journal of International Economics, Elsevier, vol. 88(1), pages 1-16.
  2. 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.
  3. Lan, Xiaohuan & Li, Ben, 2011. "Nationalism and international trade: theory and evidence," MPRA Paper 36412, University Library of Munich, Germany, revised 03 Feb 2012.
  4. Vincent Vicard, 2008. "Trade, conflicts and political integration : explaining the heterogeneity of regional trade agreements," Documents de travail du Centre d'Economie de la Sorbonne bla08022, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  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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