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Trade and Insecure Resources

  • 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 construct a model of conflict and trade to study the consequences of interstate disputes over contested resources (land, oil, water or other resources) for arming, welfare and trade flows. Different trade regimes imply different costs of such disputes in terms of arming. Depending on world prices, free trade can intensify arming to such an extent that the additional security costs it brings swamp the traditional gains from trade and thus render autarky more desirable for one or all rival states. Free trade, though, is always an equilibrium, and sometimes is a dominant one with features of a prisoner's dilemma outcome. 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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Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 111201.

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Length: 49 pages
Date of creation: Aug 2011
Date of revision: Sep 2013
Handle: RePEc:irv:wpaper:111201
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Web page: http://www.economics.uci.edu/

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