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Bilateral Trade and Political Conflict/Cooperation: Do Goods Matter?

Author

Listed:
  • Rafael Reuveny

    (School of Public and Environmental Affairs, Indiana University)

  • Heejoon Kang

    (Kelley School of Business, Indiana University)

Abstract

This article investigates Granger causality between political conflict/cooperation and bilateral trade. The measures of conflict/cooperation are constructed by accumulating daily events and splicing the two datasets of the Conflict and Peace Data Bank and the World Events Interaction Survey. Trade data from the United Nations include ten commodity groups as well as total trade. Quarterly data are analyzed from the very early 1970s to the early 1990s for four dyads of USA-USSR, USA-China, Turkey-Greece, and Egypt-Israel. Yearly data are investigated from the early 1960s to the early 1990s for 16 dyads. Granger causality between bilateral trade and conflict/cooperation is generally reciprocal in most goods and dyad dependent, but independent of whether or not two countries are political rivals. For USA-USSR and USA-China, however, there is a tendency for bilateral trade to increase in some goods when political relations improve. For USA-USSR, in particular, causality from conflict to trade is pronounced in more goods than causality from trade to conflict. While the effect of cooperation in these dyads is mostly positive, the effect of an increase of trade on conflict is generally ambiguous. For 20 dyads collectively, conflict/cooperation tends to Granger-cause bilateral trade in minerals, iron and steel, fuels, basic manufactures and control and scientific equipment; whereas bilateral trade somewhat more frequently Granger-causes conflict/cooperation in food and live animals, beverages and tobacco, and machines and transport equipment. The concept of strategic goods, much debated in the literature, is further discussed in light of these results. The general result of reciprocal Granger causality calls for a model in which both bilateral trade and conflict/cooperation are simultaneously determined. Such a simultaneous equations model is briefly sketched.

Suggested Citation

  • Rafael Reuveny & Heejoon Kang, 1998. "Bilateral Trade and Political Conflict/Cooperation: Do Goods Matter?," Journal of Peace Research, Peace Research Institute Oslo, vol. 35(5), pages 581-602, September.
    • Handle: RePEc:sae:joupea:v:35:y:1998:i:5:p:581-602
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    Cited by:

    1. Han Dorussen & Hugh Ward, 2011. "Disaggregated Trade Flows and International Conflict," Chapters, in: Christopher J. Coyne & Rachel L. Mathers (ed.), The Handbook on the Political Economy of War, chapter 25, Edward Elgar Publishing.
    2. Yang-Ming Chang & Manaf Sellak, 2019. "A game-theoretic analysis of international trade and political conflict over external territories," Public Choice, Springer, vol. 179(3), pages 209-228, June.
    3. Murshed, Mansoob & Mamoon, Dawood, 2008. "The consequences of Not Loving thy neigbor as Thyself: Trade, democracy and military explainations behind India Pakistan rivalry," MPRA Paper 10429, University Library of Munich, Germany.
    4. Håvard Hegre, 2005. "Development and the Liberal Peace," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 17-46.
    5. Reuveny Rafael, 2000. "The Trade and Conflict Debate: A Survey of Theory, Evidence and Future Research," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 6(1), pages 23-49, January.
    6. Solomon W. Polachek, 2002. "Trade-Based Interactions: an Interdisciplinary Perspective," Conflict Management and Peace Science, Peace Science Society (International), vol. 19(2), pages 1-21, September.
    7. Bakaki Zorzeta, 2016. "Fossil Fuel Rents: Who Initiates International Crises?," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 22(2), pages 173-190, April.
    8. Chang, Yuan-Ching & Polachek, Solomon W. & Robst, John, 2004. "Conflict and trade: the relationship between geographic distance and international interactions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(4), pages 491-509, September.
    9. Shiro Patrick Armstrong, 2015. "East and South Asia: Managing Difficult Bilateral Relations and Regional Integration Globally," Asian Economic Journal, East Asian Economic Association, vol. 29(4), pages 303-324, December.
    10. Selwyn J. V. Moons & Peter A. G. Bergeijk, 2017. "Does Economic Diplomacy Work? A Meta-analysis of Its Impact on Trade and Investment," The World Economy, Wiley Blackwell, vol. 40(2), pages 336-368, February.
    11. Cullen F Goenner, 2010. "From toys to warships: Interdependence and the effects of disaggregated trade on militarized disputes," Journal of Peace Research, Peace Research Institute Oslo, vol. 47(5), pages 547-559, September.
    12. Moons, S.J.V. & van Bergeijk, P.A.G., 2013. "A meta-analysis of economic diplomacy and its effect on international economic flows," ISS Working Papers - General Series 50074, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    13. Fiona McGillivray & Alastair Smith, 2005. "The Impact of Leadership Turnover and Domestic Institutions on International Cooperation," Journal of Conflict Resolution, Peace Science Society (International), vol. 49(5), pages 639-660, October.
    14. Nizan Feldman & Tal Sadeh, 2018. "War and Third-party Trade," Journal of Conflict Resolution, Peace Science Society (International), vol. 62(1), pages 119-142, January.
    15. Michele Fratianni & Heejoon Kang, 2006. "International Terrorism, International Trade, and Borders," Working Papers 2006-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    16. Michal Kolmaš, 2023. "Diverging perceptions of the “Visegrad Four + ” format and the limits of the V4 + Japan cooperation," Asia Europe Journal, Springer, vol. 21(1), pages 101-116, March.
    17. Massoud Tansa G. & Magee Christopher S., 2012. "Trade and Political, Military, and Economic Relations," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 18(1), pages 1-39, May.
    18. Han Dorussen, 2006. "Heterogeneous Trade Interests and Conflict," Journal of Conflict Resolution, Peace Science Society (International), vol. 50(1), pages 87-107, February.
    19. Edward D. Mansfield & Brian M. Pollins, 2001. "The Study of Interdependence and Conflict," Journal of Conflict Resolution, Peace Science Society (International), vol. 45(6), pages 834-859, December.
    20. Yang-Ming Chang & Manaf Sellak, 2024. "Conflict and agreement in the collective choice of trade policies: implications for interstate disputes," Public Choice, Springer, vol. 199(1), pages 103-135, April.

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