Liberalism and Interdependence: Extending the Trade-Conflict Model

Abstract

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.

Fossil Fuel Rents: Who Initiates International Crises?

“…In general, the study of states' relations over fossil fuels is related to the literature on the pacifying effects of trade between states (e.g., Reuveny and Kang, 1998;Polachek et al, 1999).…”

Does Trade Integration Contribute to Peace?

“…The -expected utility model‖ focuses on the gain and loss incurred by a conflict and suggests that a decision between cooperation and conflict by engaging parties can be explained based on a costbenefit analysis (Polachek, 1980 andPolachek et al, 1999). This framework is in general based on a decision theory focused on -one‖ agent problem.…”

Giving and Receiving Foreign Aid: Does Conflict Count?

“…Often scholars try to capture the altruistic dimension of aid by gathering data on recipient development levels such as Human Development Indicators (HDI), GDP, literacy rates, and mortality rates (see Polachek, Robst, and Chang 1999). Strategic motives have been measured by analyzing United Nations General Assembly (UNGA) voting relationships (Alesina and Dollar 2000), trade and treaty memberships (Meernik, Krueger, and Poe 1998), colonial history, human rights records (Poe and Tate 1994), and levels of democracy.…”

“…Altruistic donors might increase aid to nations that are threatened with conflict, in order to secure basic human rights and services (see Polachek, Robst, and Chang 1999). Some strategic donors may wish to stabilize recipients from whom they need future cooperation (see Stein, Ishimatsu, and Stoll 1985), or to gain access to a nation geographically near a particular conflict.…”