Winner of the SNIS Award 2018

The SNIS Award 2018, prized at CHF 10’000, has been attributed to Dr Marco Martini (ETH Zurich). The jury members praised Dr Martini’s research as “a highly original and innovative thesis” with one of the experts stating that it is “one of the best I have read in the last decade”. The experts also highlighted that “the thesis presents an original contribution to the study of trade disputes and advances the field both theoretically and empirically”.

The Logic of Escalation: Investigating the Role of Stakes in Trade Disputes as a Lens to Conflict Processes

Dr Marco Martini

 

PhD thesis defended at the Eigenössische Technische Hochschule Zurich under the supervision of Prof. Dr. Andreas Wenger.

 

Dr Martini’s thesis examines the determinants and outcomes of escalation in international trade disputes. It shows that mutual increases in parties’ stakes, rather than power relations and the parties’ costs of conflict, are linked to substantial increases in escalation levels, and the variation in bargaining outcomes declines with increased escalation levels. The thesis employs state-of-art-econometric techniques using newly collected datasets.

 

Marco Martini  is a Postdoctoral Research Associate at the Niehaus Center for Globalization and Governance at Princeton University. He holds a PhD in International Relations from ETH Zurich and an MA in Political Science and Government from Heidelberg University.

 

Read Abstract
This study investigates how government preferences (i.e., stakes) affect strategic bargaining and dispute behavior in international trade relations. While disputes and disagreements over trade policy are of considerable economic and political significance, their investigation has been subject to serious observational difficulties. In particular, reliable information on applied industry-level trade barriers is unavailable. This prevents assessments of countries’ economic and political stakes in the underlying industry-level trade relationship and thereby masks the ultimate motivation of trade disputes. Moreover, systematic data on the dispute events themselves is only available for few highly-escalated cases. Dispute dynamics concerning most industries are therefore unknown for most dyads. The same holds for the associated outcomes of these disputes (i.e., the eventual terms of agreement). This lack of detailed information has restricted the study of trade disputes to identifying aggregate, country- and dyad-level factors, such as relative GDP or aid dependence, that make involvement in high-level trade disputes more likely. To overcome these empirical challenges, I employ various statistical, text mining, and mathematical simulation techniques. Based on the extensive datasets I compile, I am able to move beyond aggregate structural conditions and investigate the detailed within-dyad variation in dispute behavior across different industries. Expanding on theoretical work on costly bargaining processes in the context of strikes, litigation, and armed conflict, I propose and test a theoretical mechanism that links initial bilateral stakes constellations to dispute escalation and eventual dispute outcomes. I find that (i) the degree of dispute escalation is limited by the lower of the two parties’ stakes; (ii) the exporter, as the typical initiator of a dispute, on average (mean) secures more favorable terms of agreement than the importer at higher escalation levels due to strategic pre-selection; and (iii) the variability (variance) of the terms of agreements decreases with the escalation level due to a higher share of compromise agreements in high-level disputes. My results, for the first time, allow to predict systematically in which industries a given country pair is most likely to have a trade dispute. This has immediate policy implications, not only because it can entail a more predictable environment for firms and governments alike, but also because it allows targeted dispute resolution, or can inform institutional design. My findings also have wider implications for our understanding of escalation processes in conflicts more generally.