IDEAS home Printed from https://ideas.repec.org/p/irv/wpaper/101105.html
   My bibliography  Save this paper

Trade in the Shadow of Power

Author

Listed:
  • 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)

Abstract

In this chapter, we examine how some of the main results in international trade theory fare when we abandon the traditional assumption of third-party enforcement of property rights. Without such enforcement, countries arm and exercise power to secure resources used in production or to secure the output from that production. Because arming is endogenous and takes scarce resources to produce, the production of final goods is also endogenous. Consequently, prices in either domestic or international markets reflect not only preferences, endowments or technologies of production as predicted by traditional models, but also arming and the power that comes from that. As we show in the context of a Ricardian model, those countries that produce the most socially valued goods tend to arm less, giving them a "comparative disadvantage" in power. Accordingly, the level of welfare obtained by these countries could be lower than that obtained in a competitive economy with perfect security. In the context of a Heckscher-Ohlin model, we find that free trade need not be preferred to autarky, as the costs of conflict or self-enforcement swamp the familiar gains from trade for a certain range of world prices. Finally, trade in the shadow of power can distort comparative advantage.

Suggested Citation

  • Michelle R. Garfinkel & Stergios Skaperdas & Constantinos Syropoulos, 2010. "Trade in the Shadow of Power," Working Papers 101105, University of California-Irvine, Department of Economics, revised Jan 2011.
  • Handle: RePEc:irv:wpaper:101105
    as

    Download full text from publisher

    File URL: https://www.economics.uci.edu/files/docs/workingpapers/2010-11/garfinkel-5.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ernesto Dal Bó & Pedro Dal Bó, 2011. "Workers, Warriors, And Criminals: Social Conflict In General Equilibrium," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 646-677, August.
    2. Michael McBride & Gary Milante & Stergios Skaperdas, 2011. "Peace and War With Endogenous State Capacity," Journal of Conflict Resolution, Peace Science Society (International), vol. 55(3), pages 446-468, June.
    3. Stergios Skaperdas & Constantinos Syropoulos, 2001. "Guns, Butter, and Openness: On the Relationship between Security and Trade," American Economic Review, American Economic Association, vol. 91(2), pages 353-357, May.
    4. Garfinkel, Michelle R. & Skaperdas, Stergios & Syropoulos, Constantinos, 2008. "Globalization and domestic conflict," Journal of International Economics, Elsevier, vol. 76(2), pages 296-308, December.
    5. Garfinkel, Michelle R. & Skaperdas, Stergios & Syropoulos, Constantinos, 2015. "Trade and insecure resources," Journal of International Economics, Elsevier, vol. 95(1), pages 98-114.
    6. Francis Bloch, 2009. "Endogenous formation of alliances in conflicts," Working Papers hal-00435387, HAL.
    7. Skaperdas, Stergios & Syropoulos, Constantinos, 1997. "The Distribution of Income in the Presence of Appropriative Activities," Economica, London School of Economics and Political Science, vol. 64(253), pages 101-117, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bonfatti, Roberto & O'Rourke, Kevin Hjortshøj, 2014. "Growth, Import Dependence and War," CEPR Discussion Papers 10073, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Trade openness; Property rights; Interstate disputes; Conflict;

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F2 - International Economics - - International Factor Movements and International Business
    • F10 - International Economics - - Trade - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:irv:wpaper:101105. 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: (Jennifer dos Santos). General contact details of provider: http://edirc.repec.org/data/deucius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.