The Last War: Economic Interdependence and the Commitment Problem

• In Event: Conflict and Trade

Abstract

Strong commercial ties promote peace as states shun the opportunity costs of economic disruption. However, trade also enriches and empowers states, rendering them more capable of enforcing long-term settlements. Given economic disruption does not last forever, countries can be incentivized to trade short-term economic losses for long-term political or territorial gains. This trade-off can restrict or even reverse the pacifying effect of commerce as it renders states incapable of committing to existing peaceful deals. I theorize such a commitment problem and demonstrate a scope condition of bilateral trade's pacifying effects. When two countries' relative efficiency of translating trade gains into military power is at the extremes, more bilateral trade can be peace-promoting. However, when the relative efficiency is in the mid-range, increasing bilateral trade can exacerbate commitment problems leading to a higher likelihood of costly conflict. I test the implications on the MID and the ICB data, finding supporting results.

Author

• Yuleng Zeng, University of Salzburg