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The geography of conflicts and free trade agreements

  • Mathias Thoenig

    (Centre Universitaire d'Informatique)

  • Thierry Mayer

    (Département d'économie)

  • Philippe Martin

    (Département d'économie)

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 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 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 a bilateral conflict, increases the political incentive to sign FTAs.

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Paper provided by Sciences Po in its series Sciences Po publications with number 7740.

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Date of creation: Mar 2010
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Handle: RePEc:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8m2hh491
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  1. Collier, Paul & Hoeffler, Anke & Soderbom, Mans, 2001. "On the duration of civil war," Policy Research Working Paper Series 2681, The World Bank.
  2. Guy Michaels & Xiaojia Zhi, 2007. "Freedom Fries," CEP Discussion Papers dp0815, Centre for Economic Performance, LSE.
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  8. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
  9. Vincent Vicard, 2008. "Trade, conflicts and political integration : explaining the heterogeneity of regional trade agreements," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00270618, HAL.
  10. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 865-900.
  11. 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.
  12. 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.
  13. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  14. Vincent Vicard, 2006. "Trade, Conflicts, and Political Integration: the Regional Interplays," CESifo Working Paper Series 1839, CESifo Group Munich.
  15. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI.
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