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Trading Away from Conflict : Using Trade to Increase Resilience in Fragile States

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  • Massimiliano Cali

Abstract

While economic growth in developing countries over the last ten years has lifted more people out of poverty than in any previous time, more than one billion people still live in countries affected by violent conflict. Conflict weakens governance, undermines economic development and threatens both national and regional stability. Trade shocks, in particular, can have widely varying impacts on conflict. This report sets out to empirically test these linkages between trade shocks and conflict via cross-country and intra-country analysis. On the basis of the analysis, it offers trade-related policy directions to reduce this risk in fragile economies. The results provide convincing evidence that trade and trade policy have a large impact on the risk and intensity of conflict. This report is composed of three main chapters. Chapter 1 develops a conceptual framework mapping the different channels through which trade may affect conflict and political stability. The framework is based on simple economic theory and the available empirical evidence on the impact of trade related changes on conflict and stability. It then tests this framework empirically through the analysis of cross-country data and through case studies of Nigeria and the Israeli-Palestinian conflict. The hope is that these types of intra-country analyses could be replicated in other countries, since they use data that are available in different countries, especially in sub-Saharan Africa. Chapter 2 uses the same conceptual framework to show how differences in underlying conditions affect the relationship between trade-related changes and conflict. Following a review of the literature on the drivers of conflict, it examines the importance of four groups of grievances: conditions in neighboring countries, factors increasing grievance, government institutions, and policies that affect the transmission of changes in international prices to the domestic market. These relationships are tested using cross-country data and case studies of Nigeria and the Israeli-Palestinian conflict. Finally, chapter 3 uses the existing evidence, as well as evidence generated in this report, to discuss how the policies governing trade can reduce the probability and intensity of conflicts. Two appendixes include detailed information on the modeling framework, the data issues and the estimation results.

Suggested Citation

  • Massimiliano Cali, 2015. "Trading Away from Conflict : Using Trade to Increase Resilience in Fragile States," World Bank Publications - Books, The World Bank Group, number 20713, April.
    • Handle: RePEc:wbk:wbpubs:20713
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    References listed on IDEAS

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    1. Tereza Nìmeèková & Arshad Hayat, 2022. "Does trade openness improve the quality of domestic institutions? Evidence from Africa," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(4), pages 881-908, December.
    2. World Bank Group, 2016. "An Integrated Framework for Jobs in Fragile and Conflict Situations," World Bank Publications - Reports 25296, The World Bank Group.
    3. Hill, Samuel & Khadan, Jeetendra & Selcuk, Peter Metin, 2025. "Fragile and Conflict-Affected Situations : Intertwined Crises, Multiple Vulnerabilities," Policy Research Working Paper Series 11210, The World Bank.
    4. Olalekan C. Okunlola & Olumide A. Ayetigbo & Sam O. Ajiye, 2022. "Does a free market system reduce conflict in Africa?," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 24(1), pages 147-170, June.

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