Investing in the Peace: Economic Interdependence and International Conflict

Abstract

Research appears to substantiate the liberal conviction that trade fosters global peace. Still, existing understanding of linkages between conflict and international economics is limited in at least two ways. First, cross-border economic relationships are far broader than just trade. Global capital markets dwarf the exchange of goods and services, and states engage in varying degrees of monetary policy coordination. Second, the manner in which economics is said to inhibit conflict behavior is implausible in light of new analytical insights about the causes of war. We discuss, and then demonstrate formally, how interdependence can influence states' recourse to military violence. The risk of disrupting economic linkages—particularly access to capital—may occasionally deter minor contests between interdependent states, but such opportunity costs will typically fail to preclude militarized disputes. Instead, interdependence offers nonmilitarized avenues for communicating resolve through costly signaling. Our quantitative results show that capital interdependence contributes to peace independent of the effects of trade, democracy, interest, and other variables.

Spatial Effects in Dyadic Data

“…The modeling of spatial dependence in undirected data strongly resembles that of monadic data+ The only difference is that instead of contagion stemming from other units, it comes from other dyads+ Hence, to model spatial dependence in undirected dyadic data researchers make the dependent variable in a dyad between i and j a function of the weighted sum of the dependent variable of all other dyads: 17+ Undirected dyadic data are commonly used in the international conflict literature~see Russett, Oneal, and Davis 1998;and Gartzke, Li, and We have denoted the connectivity or weighting matrix as v pq + Later we will discuss six different specifications of the weighting matrix, such that v pq ʦ $w ik , w ki , w jm , w mj , w~i j !~km! , w~k m!~ij !…”

Dynamics of Military Conflict: an Economics Perspective

“…Figure 1 on page 7 shows a modified version of a dynamic game introduced by Gartzke et al (2003), which serves well to illustrate the main point raised above. A resource valued at unity is in dispute among two countries, A and B.…”

“…Gartzke et al (2003), for example, use their version of the model to show that war does not arise because of any (known) cost of war, such as trade benefits, but rather through information asymmetries. For our own purposes, however, it is su cient to demonstrate how the analysis of the above model would typically proceed.…”

Reputation, group structure and social tensions

“…defection). In political science there is a large empirical literature on the "liberal peace" (see Polachek, 1980;Oneal and Russett, 1999;Gartzke, Li, and Boehmer, 2001) 3 . More recently, economists have shown interest in the interaction between trade and con ‡ict, concluding that the overall impact of trade is ambiguous and depends on the price e¤ects (Skaperdas and Syropoulos, 2001) and the bilateral versus multilateral nature of trade (Martin, Mayer and Thoenig, 2006).…”