The geography of conflicts and free trade agreements

Philippe Martin, Thierry Mayer and Mathias Thoenig

No 1019, CEPREMAP Working Papers (Docweb) from CEPREMAP

Abstract: We analyze the interaction of economic and political determinants of free trade agreements (FTA). In addition to standard trade gains, FTAs can promote peaceful relations by offering a political forum and by increasing the opportunity cost of conflicts that disrupt trade. If policy makers believe in such pacifying effects of FTAs, country pairs with large trade gains from FTAs and a high probability of conflict are more likely to sign a FTA. Using data on the 1950-2000 period, we show that this complementarity between economic and political gains is at work in the geography of FTAs. Country pairs characterized by a high frequency of old wars - which we use as a proxy of the latent probability of conflict - are shown to be more likely to sign FTAs, the more so the higher the trade gains from a FTA. These trade gains are estimated by a theory-driven empirical strategy to disentangle them from the political factors. We also show that, contrary to old wars, recent wars make it more difficult to negotiate a FTA. This suggests the existence of windows of opportunity to lock in FTAs and peace. Finally, multilateral trade openness, because it reduces the opportunity cost of bilateral conflict, increases the political incentive to sign FTAs.

Keywords: Free Trading Arrangements; Trade; War (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2010-06
New Economics Papers: this item is included in nep-int and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Working Paper: The geography of conflicts and free trade agreements (2010)
Working Paper: The geography of conflicts and free trade agreements (2010)
Working Paper: The geography of conflicts and free trade agreements (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:docweb:1019

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