Development and the liberal peace: What does it take to be a trading state?

This article investigates the liberal idea that trade between two states re duces the likelihood of militarized conflict between them. Richard Rosecran ce's argument that industrial-technological developments have made peaceful trading strategies more efficient today is examined in connection with the empirical literature on trade and conflict. Development affects the utilit y calculations of states: since the costs of seizing and holding a territor y increase with increased development, and the relative utility of occupyin g the territory decreases, the chance that the expected utility of occupati on will exceed the expected costs decreases with increased development. Lik ewise, since the utility of trade increases with increased development, the n increased development also makes it more likely that the expected costs o f breaking the trade bonds will exceed the gains to be expected from occupa tion. Consequently, the relationship between trade and conflict is continge nt on the level of development. Using Cox regression, and introducing a new measure of interdependence based on a gravity model of trade, I demonstrat e that there is a clear negative relationship between trade and conflict. H owever, this relationship is basically restricted to dyads consisting of tw o developed dyads. Development itself is strongly associated with peaceful behavior. The results also suggest that the democratic peace requires a min imum level of development to be efficient.