Globalization and Insecurity: Reviewing Some Basic Issues

We argue that the costs of domestic and transnational insecurity are large and economically significant and that they may vary with the trade regime of a country. Then, in evaluating trade regimes, the gains from trade need to be weighed against the change in the security costs they induce. Within a simple model of trade, small countries that import a contested resource unambiguously gain from free trade. However, exporters of a contested resource incur additional security costs that are higher than the gains from trade compared to autarky, as long as the international price of the contested resource is not too high. We conclude with a discussion of how domestic and transnational governance could reduce insecurity.