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Trade costs, conflicts, and defense spending

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  • 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.

Suggested Citation

  • Seitz, Michael & Tarasov, Alexander & Zakharenko, Roman, 2015. "Trade costs, conflicts, and defense spending," Journal of International Economics, Elsevier, vol. 95(2), pages 305-318.
    • Handle: RePEc:eee:inecon:v:95:y:2015:i:2:p:305-318
    DOI: 10.1016/j.jinteco.2014.11.013
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    Cited by:

    1. 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.
    2. Christos Kollias & Suzanna Maria Paleologou & Panayiotis Tzeremes & Nickolaos Tzeremes, 2018. "The demand for military spending in Latin American countries," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 27(1), pages 1-17, December.
    3. Michelle R. Garfinkel & Constantinos Syropoulos & Yoto V. Yotov, 2019. "Arming in the Global Economy: The Importance of Trade with Enemies and Friends," CESifo Working Paper Series 7500, CESifo Group Munich.
    4. Vincenzo Bove & Claudio Deiana & Roberto Nistic�, 2018. "Global Arms Trade and Oil Dependence," Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(2), pages 272-299.

    More about this item

    Keywords

    General equilibrium; Gains from trade; Defense spending;

    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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