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Trade costs, conflicts, and defense spending

Author Info

Listed author(s):
  • Seitz, Michael
  • Tarasov, Alexander
  • Zakharenko, Roman

Abstract

This paper develops a quantitative model of trade, military conflicts, and defense spending. Lowering trade costs between two countries reduces probability of an armed conflict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022199614001457
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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 95 (2015)
Issue (Month): 2 ()
Pages: 305-318

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Handle: RePEc:eee:inecon:v:95:y:2015:i:2:p:305-318
DOI: 10.1016/j.jinteco.2014.11.013
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

Keywords: General equilibrium; Gains from trade; Defense spending;

Other versions of this item:

Find related papers by JEL classification:
  • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
  • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
  • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
  • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
  • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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  19. Stergios Skaperdas & Constantinos Syropoulos, 2001. "Guns, Butter, and Openness: On the Relationship between Security and Trade," American Economic Review, American Economic Association, vol. 91(2), pages 353-357, May.
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Cited by:

  1. Vincenzo Bove & Claudio Deiana & Roberto Nisticò, 2016. "Energy (in)security and the Arms Trade," CSEF Working Papers 452, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. Christos Kollias & Suzanna-Maria Paleologou, 2017. "The Globalization and Peace Nexus: Findings Using Two Composite Indices," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(3), pages 871-885, April.

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