Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30599
Authors: 
Garfinkel, Michelle R.
Skaperdas, Stergios
Syropoulos, Constantinos
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper 2680
Abstract: 
We augment the canonical neoclassical model of trade to allow for interstate disputes over land, oil, water, or other resources. The costs of such disputes in terms of arming depend on the trade regime in place. Under either autarky or free trade, the larger country (in terms of factor endowments) need not to be more powerful. Yet, under free trade, there is a stronger tendency for arming incentives to be equalized and thus for a leveling of the playing field.” Depending on world prices, free trade can intensify arming incentives to such an extent that the additional security costs swamp the traditional gains from trade and thus render autarky more desirable for one or both rival states. Furthermore, contestation of resources can reverse a country's apparent comparative advantage relative to its comparative advantage in the absence of conflict. And, where such conflict is present, comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns.
Subjects: 
trade openness
property rights
interstate disputes
conflict
security policies
JEL: 
D30
D70
D72
D74
F2
F10
Document Type: 
Working Paper

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