Trade and Political, Military, and Economic Relations

This paper uses an events data set for the post-Cold War era to measure the impact of trade interdependence on three different types of dyadic interactions: political, military, and economic. The paper extends the literature on trade and peace by estimating a model in which trade and interstate interactions are treated as endogenous. We also move beyond the common measure of conflict as the use of force to consider different types and levels of conflict that fall short of war. We find that trade significantly raises net cooperation on political and economic interactions, but trade does not improve net cooperation over military issues. By allowing for mutual causality between cooperation and trade, we show that more cooperation on political and military issues leads to greater trade between countries. Moreover, the impact of overall cooperation on trade is larger than the effect of trade on cooperation. An important lesson from the paper is that the relationship between trade and net cooperation depends on the type of interstate relations being examined. The general findings are supported even after performing a number of robustness checks.