Sovereign Gravity: The Military Alliance Effect on Trade

Matteo Neri-Lainé

Working Papers from CEPII research center

Abstract: International insecurity can severely disrupt trade. This paper studies treaties aimed at preventing such insecurity: military alliances. We develop a quantitative model of trade with endogenous international insecurity, where alliances affect trade flows by reducing the risk of violent expropriation faced by firms. Taking a structural gravity approach, we show that alliances increase trade by 66% on average. The effects of military alliances are dynamic and heterogeneous. They depend to a large extent on the type of alliance and the economic size of partners. An instrumental variable strategy and an event study confirm the causal interpretation of the results. Investigating the mechanism behind the impacts of military alliances, we demonstrate that alliances increase trade by reducing international insecurity. Moreover, employing the full scope of our theoretical model, a general equilibrium analysis shows that the growth in trade generated by military alliances brings substantial welfare gains for signatories and losses for non-aligned countries.

Keywords: Military Alliances; Trade; International Insecurity; Conflict; Geoeconomics; Structural Gravity; General Equilibrium; Welfare (search for similar items in EconPapers)
JEL-codes: F1 F5 (search for similar items in EconPapers)
Date: 2026-03
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