Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/198860 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7500
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We analyze how trade openness matters for interstate conflict over productive resources. Our analysis features a terms-of-trade channel that makes security policies trade-regime dependent. Specifically, trade between two adversaries reduces each one’s incentive to arm given the opponent’s arming. If these countries have a sufficiently similar mix of initial resource endowments, greater trade openness brings with it a reduction in resources diverted to conflict and thus wasted, as well as the familiar gains from trade. Although a move to trade can otherwise induce greater arming by one of them and thus need not be welfare improving for both, aggregate arming falls. By contrast, when the two adversaries do not trade with each other but instead trade with a third (friendly) country, a move from autarky to trade intensifies conflict between the two adversaries, inducing greater arming. With data from the years surrounding the end of the Cold War, we exploit the contrasting implications of trade between enemies versus trade between friends to provide some evidence that is consistent with the theory.
Subjects: 
resource insecurity
interstate disputes
conflict
arming
trade openness
comparative advantage
JEL: 
D30
D74
F10
F51
F52
Document Type: 
Working Paper
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