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Make trade not war ?

  • Martin, Philippe
  • Mayer, Thierry
  • Thoenig, Mathias

This paper analyses theoretically and empirically the relationship between trade and war. We show that the intuition that trade promotes peace is only partially true even in a model where trade is beneficial to all, war reduces trade and leaders take into account the costs of war. When war can occur because of the presence of asymmetric information, the probability of escalation is indeed lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains. However, countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country. Using a theoretically-based econometric model, we test our predictions on a large dataset of military conflicts in the period 1948-2001. We find strong evidence for the contrasting effects of bilateral and multilateral trade. Our empirical results also confirm our theoretical prediction that multilateral trade openness increases more the probability of war between proximate countries. This may explain why military conflicts have become more localized and less global over time.

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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 0515.

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Length: 42 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:cpm:docweb:0515
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  1. Arvind Subramanian & Shang-Jin Wei, 2003. "The WTO Promotes Trade, Strongly But Unevenly," NBER Working Papers 10024, National Bureau of Economic Research, Inc.
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  4. Gilat Levy & Ronny Razin, 2004. "It takes two : an explanation of the democratic peace," LSE Research Online Documents on Economics 539, London School of Economics and Political Science, LSE Library.
  5. Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 682-698, 09.
  6. Olivier Compte & Philippe Jehiel, 2004. "Inefficiencies in Bargaining: Departing from Akerlof and Myerson-Satterthwaite," Levine's Bibliography 122247000000000744, UCLA Department of Economics.
  7. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  8. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1027-1056.
  9. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
  10. Enrico Spolaore & Alberto Alesina, 2001. "War, Peace and the Size of Countries," Harvard Institute of Economic Research Working Papers 1937, Harvard - Institute of Economic Research.
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  14. Gregory D. Hess & Athanasios Orphanides, 1999. "War and Democracy," CESifo Working Paper Series 201, CESifo Group Munich.
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  17. repec:idb:brikps:6509 is not listed on IDEAS
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  19. Gregory D. Hess, 2002. "The Economic Welfare Cost of Conflict: An Empirical Assessment," Claremont Colleges Working Papers 2002-08, Claremont Colleges.
  20. repec:rus:hseeco:123558 is not listed on IDEAS
  21. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
  22. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  23. Hess, Gregory D & Orphanides, Athanasios, 1995. "War Politics: An Economic, Rational-Voter Framework," American Economic Review, American Economic Association, vol. 85(4), pages 828-46, September.
  24. Daniel M. Jones & Stuart A. Bremer & J. David Singer, 1996. "Militarized Interstate Disputes, 1816–1992: Rationale, Coding Rules, and Empirical Patterns," Conflict Management and Peace Science, Peace Science Society (International), vol. 15(2), pages 163-213, September.
  25. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  26. Herschel I. Grossman, 2013. "Choosing Between Peace and War," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 765-783, November.
  27. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 1990. "Economic Sanctions Reconsidered: 2nd Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 82.
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