Liberalism and interdependence: Extending the trade-conflict model

The question of whether trade affects conflict is important for public poli cy. To dare, theoretical studies have treated trade or the gains from trade as exogenous. However, a dyad's gains from trade are influenced by a numbe r of factors, including foreign aid, tariffs, contiguity, and relative coun try size. This article presents a mathematical model to extend the conflict -trade model to incorporate foreign aid, tariffs, contiguity, and country s ize. In particular, we examine how the gains from trade are affected by the se factors, with foreign aid, and contiguity increasing the gains from trad e and tariffs reducing the gains from trade. Small countries have larger tr ade gains when trading with a large country than with a small country. If c ountries seek to protect their trade gains, the model predicts that foreign aid and contiguity will decrease conflict, while tariffs will increase con flict. The contiguity result suggests that conflict between neighboring cou ntries would be greater than observed if nor for the mitigating effects of trade. Trade with large countries decreases conflict more than trade with s mall countries. In addition, rather than concentrating solely on bilateral interactions, the models are specified in enough detail to garner implicati ons concerning the effects of changes in the terms of trade on third partie s. Empirical results, generally supporting the hypotheses, are presented us ing a sample from the Conflict and peace Data Bank.