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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. Baldwin, Richard & Jaimovich, Dany, 2012. "Are Free Trade Agreements contagious?," Journal of International Economics, Elsevier, vol. 88(1), pages 1-16.
  2. Guy Michaels & Xiaojia Zhi, 2010. "Freedom Fries," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 256-81, July.
  3. Collier, Paul & Hoeffler, Anke & Soderbom, Mans, 2001. "On the duration of civil war," Policy Research Working Paper Series 2681, The World Bank.
  4. repec:hal:cesptp:halshs-00270618 is not listed on IDEAS
  5. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  6. 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.
  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. 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.
  9. Martin, Philippe & Mayer, Thierry & Thoenig, Mathias, 2005. "Make trade not war ?," CEPREMAP Working Papers (Docweb) 0515, CEPREMAP.
  10. 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.
  11. Estevadeordal, Antoni & Freund, Caroline & Ornelas, Emanuel, 2008. "Does regionalism affect trade liberalization toward non-members ?," Policy Research Working Paper Series 4751, The World Bank.
  12. Spolaore, Enrico & Wacziarg, Romain, 2013. "War and Relatedness," CAGE Online Working Paper Series 140, Competitive Advantage in the Global Economy (CAGE).
  13. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI.
  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, 2006. "Trade, Conflicts, and Political Integration: the Regional Interplays," CESifo Working Paper Series 1839, CESifo Group Munich.
  16. 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. 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.
  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. 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.
  4. 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.
  5. 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.

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