Working Paper: CEPR ID: DP18419
Authors: Mathias Thoenig
Abstract: This paper presents a quantitative toolkit for investigating the interplay between international trade and interstate war. A generic modeling framework is first constructed based on two core elements: (i) a structural gravity model of trade and (ii) a game of diplomatic negotiation that aims to deescalate geopolitical tensions and prevent armed conflicts. Methodologically, the setup extends the conventional quantitative procedures of trade policy evaluation to incorporate conflict risk. A series of empirically relevant scenarios is then simulated to assess the welfare gains of trade in a context of heightened conflict risk. Finally, the framework is used to structure a survey of the existing literature on trade and war.
Keywords: international trade; interstate conflict; opportunity cost of war; geography of import sourcing; economic interdependence; geoeconomic welfare gains
JEL Codes: F1; F5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased trade interdependence (F14) | Raises opportunity cost of war (OCW) (H56) |
| Raises opportunity cost of war (OCW) (H56) | Deters armed conflicts (D74) |
| Higher trade volumes (F19) | Decrease in likelihood of conflict escalation (D74) |
| Diplomatic negotiations influenced by trade dynamics (F51) | Prevent conflicts (D74) |
| Higher bilateral trade shares (F10) | Less likely to engage in military confrontations (D74) |
| Bilateral import dependence (F10) | Pacifies relations (D74) |
| Multilateral dependencies (C39) | Destabilizing effects (D50) |