Complex Interdependence: Global Value Chains and Military Conflict

• In Event: Military and Economic Interdependence

Abstract

Economic interdependence shapes countries' incentives to engage in conquest and military coercion -- but different types of interdependence generate different, and sometimes contradictory, effects. When the quantitative literature on the commercial peace emerged in the 1980s, economic interdependence could be reasonably proxied by aggregate trade flows, and those flows largely consisted of arms-length trade in raw commodities and finished goods. Economic interdependence has transformed radically in recent decades, with multinational firms, foreign direct investment, and the trade of intermediate goods all skyrocketing in importance. While these newer types of interdependence continue to reduce the economic incentives of states to conquer their neighbors' territory outright, they may increase incentives for countries to demand changes to a neighbor's policies or politics, including not only foreign policy but also domestic economic policy. This paper traces the theoretical and empirical evolution of the literature on interdependence and peace and extends it to develop theoretical expectations that link newly prominent types of interdependence to their implications for war and peace. We argue that FDI and trade in intermediate goods generate deeper interdependence than portfolio investment and trade in raw commodities or finished goods. We also argue that interdependence raises the cost of large-scale wars but may increase the prevalence of low-level militarized disputes. To evaluate these expectations, we compile a diverse array of dyadic data on economic ties between states and use latent-variable models to estimate several theoretically distinct types of economic interdependence. We then evaluate the relationships between each type of interdependence and both both high- and low-intensity interstate conflict.

Authors

• Benjamin A.T. Graham, University of Southern California

• Miriam Barnum, Purdue University