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Arming in the Global Economy: The Importance of Trade with Enemies and Friends

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  • Michelle R. Garfinkel
  • Constantinos Syropoulos
  • Yoto V. Yotov

Abstract

We analyze how trade openness matters for interstate conflict over productive resources. Our analysis features a terms-of-trade channel that makes security policies trade-regime dependent. Specifically, trade between two adversaries reduces each one’s incentive to arm given the opponent’s arming. If these countries have a sufficiently similar mix of initial resource endowments, greater trade openness brings with it a reduction in resources diverted to conflict and thus wasted, as well as the familiar gains from trade. Although a move to trade can otherwise induce greater arming by one of them and thus need not be welfare improving for both, aggregate arming falls. By contrast, when the two adversaries do not trade with each other but instead trade with a third (friendly) country, a move from autarky to trade intensifies conflict between the two adversaries, inducing greater arming. With data from the years surrounding the end of the Cold War, we exploit the contrasting implications of trade between enemies versus trade between friends to provide some evidence that is consistent with the theory.

Suggested Citation

  • 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.
  • Handle: RePEc:ces:ceswps:_7500
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    References listed on IDEAS

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    3. Michelle R. Garfinkel & Constantinos Syropoulos, 2019. "On Trade and the Stability of (Armed) Peace," Working Papers 181910, University of California-Irvine, Department of Economics.

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    More about this item

    Keywords

    resource insecurity; interstate disputes; conflict; arming; trade openness; comparative advantage;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F10 - International Economics - - Trade - - - General
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism

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