From Trade to Tensions: How Economic Interdependence Shapes Diplomatic Hospitality, 1989–2019

Weijie Luo, Shikun Qin, Zhengkai Yang and Yi Zhou

The World Economy, 2026, vol. 49, issue 2, 384-404

Abstract: This paper revisits the commercial peace hypothesis using global event data from 1989 to 2019. We show that greater imports consistently worsen bilateral relations, with the effect strengthening after the 2008 financial crisis. The negative impact is most pronounced in democracies, high‐income countries and those with elevated unemployment, where globalisation's distributive conflicts more easily shape foreign policy. Instrumental variable estimates confirm causality, and analyses using militarised interstate disputes reveal that trade‐driven tensions extend beyond diplomacy to overt conflict. These findings challenge the optimistic view that economic interdependence fosters peace.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:49:y:2026:i:2:p:384-404

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