Conflict and Trade

TLDR

The article uses microeconomic theory to argue that inter‑country trade dependence raises conflict costs and thus reduces dyadic disputes. The authors test the trade‑conflict hypothesis with a ten‑year, thirty‑country panel compiled from four data sets. Results show that higher trade levels are associated with lower hostility, with a 20% reduction in conflict for each doubling of trade, and the relationship remains robust after causal adjustments.

Abstract

This article applies microeconomic theory to illustrate the plausibility of a relationship between international trade and conflict. It is argued that the mutual dependence established between two trading partners (dyads) is sufficient to raise the costs of conflict, there-by diminishing levels of dyadic dispute. This hypothesis of a negative relationship between conflict and trade is tested using a ten-year thirty-country cross section merged from four separate data sources. It is found that ceteris paribus countries with the greatest levels of economic trade engage in the least amounts of hostility. In fact, a doubling of trade on average leads to a 20% diminution of belligerence. This relationship appears robust, holding even more strongly when statistical adjustments are made for causality.