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Endogenous Security, Third-Party Trade, and Interstate Disputes: A Conflict-Theoretic Analysis

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  • Yang-Ming Chang
  • Manaf Sellak

Abstract

This paper examines third-party trade and its implications for conflicts between hostile countries not engaging in trade. We present a conflict-theoretic model to analyze two adversaries’ endogenous arming decisions when they separately establish a free trade agreement (FTA) with a neutral third-party state. We contrast this multiple FTAs regime with a single FTA regime between one adversary and the third-party state, which excludes the other adversary as a non-member. In our analysis, the benchmark case is a protectionist regime when the bilateral trade between the third-party state and each of the adversaries is a tariff war. Among the three trade regimes, we show that the two adversaries’ aggregate arming is the lowest under multiple FTAs but is the highest under a single FTA. These results suggest that, despite no trade between two adversary countries, multiple FTAs through third-party trade have the pacifying or appeasing effect of lowering overall military buildups in interstate conflicts.

Suggested Citation

  • Yang-Ming Chang & Manaf Sellak, 2023. "Endogenous Security, Third-Party Trade, and Interstate Disputes: A Conflict-Theoretic Analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 34(2), pages 160-182, February.
    • Handle: RePEc:taf:defpea:v:34:y:2023:i:2:p:160-182
    DOI: 10.1080/10242694.2021.1949830
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