The Classical Liberals Were Half Right (or Half Wrong): New Tests of the ‘Liberal Peace’, 1960-88

Classical liberals such as Kant argued that expanding political participation and increasing economic interdependence would promote peace among states. Recent empirical support for both propositions has led to a growing consensus on the power of the ‘liberal peace’. This article challenges one pillar of the liberal peace. Using a dataset of international disputes from 1960 to 1988, the authors find that there is no statistical evidence of the pacifying effect of economic interdependence. Findings in the existing literature appear to be due to the improper use of the classic logit (or probit) method despite the existence of the ‘simultaneity problem’ between the use of force and interdependence (i.e. reciprocal causation). In this study, the authors employ a two-stage probit least squares method to control this problem. Although Kant’s prediction with respect to regime type is supported by the analysis, the claim that economic interdependence will decrease conflict is not. The two-stage results reveal that international conflict reduces economic interdependence (rather than interdependence reducing conflict). The findings are robust using five alternative operationalizations of the economic interdependence variable. Finally, a re-analysis of the Russett & Oneal dataset using a two-stage probit model also indicates that the impact of economic interdependence evaporates after correcting for the simultaneity problem.