of North Carolina life are necessarily constrained by complementarity and substitution relations in the household production process and by comparative Research here reported is part of a continuing study of the distribution of income, conducted by the National Bureau of Economic Research and funded by the National Science Foundation and the Office of Economic Opportunity. This report has not undergone the usual NBER review. We arc grateful to

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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.

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The question of whether trade affects conflict is important for public policy. To date, theoretical studies have treated trade or the gains from trade as exogenous. However, a dyad's gains from trade are influenced by a number of factors, including foreign aid, tariffs, contiguity, and relative country size. This article presents a mathematical model to extend the conflict-trade model to incorporate foreign aid, tariffs, contiguity, and country size. In particular, we examine how the gains from trade are affected by these factors, with foreign aid, and contiguity increasing the gains from trade and tariffs reducing the gains from trade. Small countries have larger trade gains when trading with a large country than with a small country. If countries seek to protect their trade gains, the model predicts that foreign aid and contiguity will decrease conflict, while tariffs will increase conflict. The contiguity result suggests that conflict between neighboring countries would be greater than observed if not for the mitigating effects of trade. Trade with large countries decreases conflict more than trade with small countries. In addition, rather than concentrating solely on bilateral interactions, the models are specified in enough detail to garner implications concerning the effects of changes in the terms of trade on third parties. Empirical results, generally supporting the hypotheses, are presented using a sample from the Conflict and Peace Data Bank.

The Economics of Earnings analyses the wages that people earn, the jobs they do, and the labour market laws and rules within which they operate. Moving away from the conventional emphasis on point-in-time one-period decisions, it stresses informed worker choice over the life-cycle - the human capital approach. Within this framework, the book synthesises research results so as to point the way to better labour market policies. Government policy is often directed towards labour market issues such as education subsidies, training programmes, health and safety laws, and employment protection laws. By using models based on informed worker choice - the supply side - this book will assist concerned individuals in government, industry and academic study to evaluate and improve labour market policies and practices.

This paper provides an economics-based interpretation of the standard finding in the literature that democracies rarely fight each other. A general theory of conflict between two countries is presented and empirical analysis applies this theory to the question of why democracies rarely fight each other. The results show that the fundamental factor in causing bilateral cooperation is trade. Countries seek to protect wealth gained through international trade, therefore trading partners are less combative than nontrading nations. Democratic dyads trade more than nondemocratic dyads, and thus exhibit less conflict and more cooperation.

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