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International Trade and Transnational Insecurity: How Comparative Advantage and Power are Jointly Determined

  • Michelle R. Garfinkel

    ()

    (Department of Economics, University of California-Irvine)

  • Stergios Skaperdas

    ()

    (Department of Economics, University of California-Irvine)

  • Constantinos Syropoulos

    ()

    (Department of Economics and International Business, Drexel University)

We augment the canonical neoclassical model of trade to allow for interstate disputes over land, oil, water, or other resources. The costs of such disputes in terms of arming depend on the trade regime in place. Under either autarky or free trade, the larger country (in terms of factor endowments) need not to be more powerful. Yet, under free trade, there is a stronger tendency for arming incentives to be equalized and thus for a " leveling of the playing field." Depending on world prices, free trade can intensify arming incentives to such an extent that the additional security costs swamp the traditional gains from trade and thus render autarky more desirable for one or both rival states. Furthermore, contestation of resources can reverse a country's apparent comparative advantage relative to its comparative advantage in the absence of conflict. And, where such conflict is present, comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns.

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File URL: http://www.economics.uci.edu/files/docs/workingpapers/2008-09/skaperdas-21.pdf
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Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 080921.

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Length: 54 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:irv:wpaper:080921
Contact details of provider: Postal: Irvine, CA 92697-3125
Phone: (949) 824-5788
Web page: http://www.economics.uci.edu/

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