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Trade and Conflict: a network approach

To what extent does the promotion of intra-regional trade help reduce conflicts in the Middle East, Sub-Saharan Africa and South America?

Project Summary

Starting with the classical preoccupation of the philosopher Montesquieu: “[c]ommerce is a cure for the most destructive prejudices; for it is almost a general rule, that wherever we find agreeable manners, there commerce flourishes; and that wherever there is commerce, there we meet with agreeable manners”; this project questions the crucial hypothesis according to which “peace is the natural effect of trade”.

The recent proliferation of international conflicts in some regions highlights the need for a better understanding of their determinants. The Middle East, Sub-Saharan Africa and Latin America are regions that have low levels of intra-regional trade and a high propensity to international conflict. This project aims at exploring how the promotion of intra-regional trade in the examined regions can help reduce conflicts. A special focus will be put on the role that trade relationships and trade agreements can play in this context. While most of the literature focuses on the importance of overall trade or bilateral trade on peace, the project will furthermore explore the role of indirect trade linkages or trade networks for bilateral and regional peace.

Academic Output

Working Paper

The analysis of the effects of international trade on interstate conflict has almost exclusively resorted to the relation between total bilateral trade and total bilateral conflict, simply toting flows in both directions. This paper empirically explores the determinants of bilateral conflict taking into account the direction of each trade flow and the direction of conflict. Building a continuous event-based measure of interstate conflict, and suggesting a spatial model in the network of dyads, I estimate a dynamic model for emitted conflict that controls for received conflict. Results show that exports and imports have opposite effects, while the former has a pacifying effect the latter promotes conflictive relations. From a policy standpoint, this finding suggests that balanced trade – and not just trade – shall be encouraged in order to reach more peaceful international relations.

Executive Summary

The recent proliferation of international conflicts in some regions highlights the need for a better understanding of their determinants. This research project focuses on the role played by the network of international trade relationship. While most of the literature has focused on the importance of overall trade or bilateral trade on peace, the project explores the role of trade imbalances, complementarities, substitutability and rivalry in third markets as determinants of conflict. After constructing new measures of international conflict that are continuous and asymmetric using the event GDELT database, we find that the direction of trade matters for the direction of conflict. Indeed, exporters are less likely to engage in conflict with an importer, whereas importers are more likely to engage in conflict. This suggests that trade imbalances can promote conflict. We also find that a higher degree of conflict is observed between partners with complementary trade bundles, and with countries with an export or import bundle that is more difficult to substitute with alternative partners. Export rivalry in third countries is also a source of conflict.

Research Team

Marcelo Olarreaga
Coordinator
University of Geneva

Marcel Vaillant
Co-Coordinator
Universidad de la Republica

Manuel Flores
Principal Member
Universidad de la Republica

Simon Hug
Associated Member
University of Geneva

Mathias Thoenig
Associated Member
University of Lausanne

Status

completed

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