Make Trade not War?
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.
|Date of creation:||Sep 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew K. Rose, 2002.
"Do We Really Know that the WTO Increases Trade?,"
NBER Working Papers
9273, National Bureau of Economic Research, Inc.
- Alesina, Alberto & Spolaore, Enrico, 2006.
"Conflict, defense spending, and the number of nations,"
European Economic Review,
Elsevier, vol. 50(1), pages 91-120, January.
- Spolaore, Enrico & Alesina, Alberto, 2006. "Conflict, Defense Spending, and the Number of Nations," Scholarly Articles 4553016, Harvard University Department of Economics.
- James E. Anderson & Eric van Wincoop, 2004.
Boston College Working Papers in Economics
593, Boston College Department of Economics.
- James E. Anderson & Eric van Wincoop, 2001.
"Gravity with Gravitas: A Solution to the Border Puzzle,"
NBER Working Papers
8079, National Bureau of Economic Research, Inc.
- James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
- James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
- Spolaore, Enrico & Alesina, Alberto, 2005.
"War, Peace, and the Size of Countries,"
4553002, Harvard University Department of Economics.
- 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.
- 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.
- Levy, Gilat & Razin, Ronny, 2003.
"It Takes Two: An Explanation of the Democratic Peace,"
CEPR Discussion Papers
3947, C.E.P.R. Discussion Papers.
- Gilat Levy & Ronny Razin, 2004. "It Takes Two: An Explanation for the Democratic Peace," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 1-29, 03.
- 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.
- Alejandro Izquierdo & Jacques Morriset & Marcelo Olarreaga, 2003.
"Information Diffusion in International Markets,"
Research Department Publications
4335, Inter-American Development Bank, Research Department.
- Izquierdo, Alejandro & Morisset, Jacques & Olarreaga, Marcelo, 2003. "Information diffusion in international markets," Policy Research Working Paper Series 3032, The World Bank.
- Alejandro Izquierdo & Jacques Morriset & Marcelo Olarreaga, 2003. "Information Diffusion in International Markets," IDB Publications (Working Papers) 6509, Inter-American Development Bank.
- Izquierdo, Alejandro & Morisset, Jacques & Olarreaga, Marcelo, 2003. "Information Diffusion in International Markets," CEPR Discussion Papers 3872, C.E.P.R. Discussion Papers.
- Rose, Andrew K, 2003.
"Which International Institutions Promote International Trade?,"
CEPR Discussion Papers
3764, C.E.P.R. Discussion Papers.
- Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 682-698, 09.
- Garfinkel, Michelle R, 1994.
"Domestic Politics and International Conflict,"
American Economic Review,
American Economic Association, vol. 84(5), pages 1294-1309, December.
- Gregory D. Hess & Athanasios Orphanides, 2001.
"War and Democracy,"
Journal of Political Economy,
University of Chicago Press, vol. 109(4), pages 776-810, August.
- 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.
- Arvind Subramanian & Shang-Jin Wei, 2003.
"The WTO Promotes Trade, Strongly But Unevenly,"
NBER Working Papers
10024, National Bureau of Economic Research, Inc.
- Rauch, James E., 1999.
"Networks versus markets in international trade,"
Journal of International Economics,
Elsevier, vol. 48(1), pages 7-35, June.
- Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
- Roger B. Myerson & Mark A. Satterthwaite, 1981.
"Efficient Mechanisms for Bilateral Trading,"
469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Gregory D. Hess, 2002.
"The Economic Welfare Cost of Conflict: An Empirical Assessment,"
Claremont Colleges Working Papers
2002-08, Claremont Colleges.
- Gregory D. Hess, 2003. "The Economic Welfare Cost of Conflict: An Empirical Assessment," CESifo Working Paper Series 852, CESifo Group Munich.
- Baldwin, R E & Murray, Tracy, 1977. "MFN Tariff Reductions and Developing Country Trade Benefits under the GSP," Economic Journal, Royal Economic Society, vol. 87(345), pages 30-46, March.
- Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
- Daniel M. Jones & Stuart A. Bremer & J. David Singer, 1996. "Militarized Interstate Disputes, 1816â€“1992: Rationale, Coding Rules, and Empirical Patterns," Conflict Management and Peace Science, Peace Science Society (International), vol. 15(2), pages 163-213, September.
- repec:rus:hseeco:123558 is not listed on IDEAS
- 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.
- Herschel I. Grossman, 2013.
"Choosing Between Peace and War,"
Annals of Economics and Finance,
Society for AEF, vol. 14(2), pages 765-783, November.
- Olivier Compte & Philippe Jehiel, 2004. "Inefficiencies in Bargaining: Departing from Akerlof and Myerson-Satterthwaite," Levine's Bibliography 122247000000000744, UCLA Department of Economics.
- 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.
- repec:rus:hseeco:123708 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5218. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.