Trade and conflict revisited: Do politics matter?

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Abstract
This paper re‐examines the relationship between trade and conflict. It is argued that the current findings on the trade‐conflict hypothesis omit political effects germane to a fully specified explanation of international conflict. In particular, conflict is greatly influenced by the patterns of exchange which constrain trading activity; the dynamics of the conflict process which may overshadow the peaceful effects from trade; and the sources of risk and uncertainty which have a political as well as economic component. By including these effects, several anomalies in the literature are more satisfyingly explained and some counterintuitive results may be predicted from the general model of trade and conflict. A retest of the hypothesis that trade lowers the level of conflict is made via a pooled regression model. The results confirm earlier findings but as anticipated, several important exceptions emerge. First, trade does not provide an economic incentive to cooperate even though it may serve to diminish the overall level of conflict. Second, trade may diminish conflict even in the absence of the threat of reciprocal action on the part of the trading partner. Third, trade may diminish cooperation in the economic arena where norms of competition dominate or where the U.S. as a trading partner exerts extraordinary influence.

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