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The geography of conflicts and free trade agreements

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

We analyze the interaction of economic and political determinants of free trade agreements (FTA). In addition to standard trade gains, FTAs can promote peaceful relations by offering a political forum and by increasing the opportunity cost of conflicts that disrupt trade. If policy makers believe in such pacifying effects of FTAs, country pairs with large trade gains from FTAs and a high probability of conflict are more likely to sign a FTA. Using data on the 1950-2000 period, we show that this complementarity between economic and political gains is at work in the geography of FTAs. Country pairs characterized by a high frequency of old wars - which we use as a proxy of the latent probability of conflict - are shown to be more likely to sign FTAs, the more so the higher the trade gains from a FTA. These trade gains are estimated by a theory-driven empirical strategy to disentangle them from the political factors. We also show that, contrary to old wars, recent wars make it more difficult to negotiate a FTA. This suggests the existence of windows of opportunity to lock in FTAs and peace. Finally, multilateral trade openness, because it reduces the opportunity cost of bilateral conflict, increases the political incentive to sign FTAs.

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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 1019.

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Length: 36 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:cpm:docweb:1019
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  1. Marco Fugazza & Frédéric Robert-Nicoud, 2010. "The 'emulator effect' of the Uruguay round on US regionalism," LSE Research Online Documents on Economics 28723, London School of Economics and Political Science, LSE Library.
  2. Enrico Spolaore & Romain Wacziarg, 2009. "War and Relatedness," Discussion Papers Series, Department of Economics, Tufts University 0734, Department of Economics, Tufts University.
  3. Vincent Vicard, 2008. "Trade, conflicts and political integration : explaining the heterogeneity of regional trade agreements," Documents de travail du Centre d'Economie de la Sorbonne bla08022, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  4. Guy Michaels & Xiaojia Zhi, 2010. "Freedom Fries," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 256-81, July.
  5. Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," Working Paper 2005-03, Federal Reserve Bank of Atlanta.
  6. Estevadeordal, Antoni & Freund, Caroline & Ornelas, Emanuel, 2008. "Does regionalism affect trade liberalization toward non-members ?," Policy Research Working Paper Series 4751, The World Bank.
  7. Richard Baldwin & Dany Jaimovich, 2010. "Are Free Trade Agreements Contagious?," NBER Working Papers 16084, National Bureau of Economic Research, Inc.
  8. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
  9. Martin, Philippe & Mayer, Thierry & Thoenig, Mathias, 2005. "Make trade not war ?," CEPREMAP Working Papers (Docweb) 0515, CEPREMAP.
  10. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  11. Collier, Paul & Hoeffler, Anke & Soderbom, Mans, 2001. "On the duration of civil war," Policy Research Working Paper Series 2681, The World Bank.
  12. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI.
  13. Mansfield, Edward D. & Pevehouse, Jon C., 2000. "Trade Blocs, Trade Flows, and International Conflict," International Organization, Cambridge University Press, vol. 54(04), pages 775-808, September.
  14. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
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