Arming in the Global Economy: The Importance of Trade with Enemies and Friends

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7500

Classification and Topics

• Classification: Wirtschaft ; Distribution: General ; Conflict; Conflict Resolution; Alliances; Revolutions ; Trade: General ; International Conflicts; Negotiations; Sanctions ; National Security; Economic Nationalism
• Subject: resource insecurity ; interstate disputes ; conflict ; arming ; trade openness ; comparative advantage

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Garfinkel, Michelle R. ; Syropoulos, Constantinos ; Yotov, Yoto V.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/198860
• Last update: 10.03.2025, 11:42 AM CET