Economic Interdependence and Conflict in MENA

Militarized conflict worldwide has been on a declining trend after World War II while trade and economic interdependence have been in-creasing rapidly. Whether trade and economic interdependence promote peace and whether conflict harms trade ties between countries are critical questions which have been studied widely in the conflict literature. A strand of this literature finds that bilateral trade reduces the probability of militarized conflict while multilateral trade increases the probability of conflict. In this research, we ask whether the relationship between trade and conflict is different for the MENA region as compared to the rest of the world. Using the dataset on Militarized Interstate Dispute between 1960 and 2014, we find that trade is not disrupted significantly after a conflict episode in the region. We find that unlike previous studies, both bilateral and multilateral trade induce conflict in the overall MENA region, however, as for oil rich countries, the increase in bilateral trade links is associated with lower probability of militarized conflict. RTAs within the region almost do not have an impact, due to their low effects on regional trade. Deeper RTAs may have had a different impact. Furthermore, countries with higher export sophistication are more likely to engage in conflict in the region. Finally we do not find a statistically significant relationship between FDI flows and conflict in general, but FDI outflows seem to be more deterrent for conflict than inflows