Trading with the Enemy

Michelle Garfinkel and Constantinos Syropoulos ()

No 151603, Working Papers from University of California-Irvine, Department of Economics

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 adversarial countries reduces their incentives to arm given the opponent's arming. If they have a sufficiently similar mix of initial resource endowments, a move to trade brings with it a reduction in resources diverted to conflict and thus wasted, as well as the familiar gains from trade. Otherwise, a move to trade can induce greater arming by one of them and thus need not be welfare improving for both. Moreover, when the two adversarial countries 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. Building on the welfare implications, we also analyze the endogenous choice of trade regimes.

Keywords: Resource insecurity; Interstate disputes; Conflict; Trade openness; Comparative advantage (search for similar items in EconPapers)
JEL-codes: D30 D74 F10 F51 F52 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2015-11, Revised 2017-09
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Trading with the Enemy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:151603

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