Make trade, not war?

In a previous post, I passingly mentioned free trade as a potential force for peace. Philippe Martin, Thierry Mayer, and Mathias Thoenig (free access paper, Vox EU, via Mark Thoma) dig deeper and find that important qualifications apply - and the effect can go the other way too. From the abstract (edited, italics my own):

This paper analyzes theoretically and empirically the relationship between military conflicts and trade. We show that the conventional wisdom that trade promotes peace is only partially true. The probability of escalation is lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains. However, countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country and the cost of a bilateral conflict.

We test our predictions on a large data set of military conflicts on the 1950-2000 period. We find robust evidence for the contrasting effects of bilateral and multilateral trade openness. For proximate countries, we find that trade has had a surprisingly large effect on their probability of military conflict.

The authors are by no means saying that trade should be avoided - read VoxEU for further comments - but they do a good job of highlighting there's more to 'trade stops wars' than meets the eye.

by datacharmer | Thursday, July 05, 2007
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